Fueled by fiber and mobile transport orders, DZS notched its second-consecutive period of record orders in the second quarter of 2021. And while the company continues to field an influx of requests for proposal (RFPs), DZS, like most of its peers, continues to grapple with supply chain constraints.

Those supply chain issues took a bite out of DZS's adjusted gross margins in Q2 due to longer than normal lead times, higher semiconductor costs, increased secondary market costs, expedite charges and high freight and logistics costs, Charlie Vogt, DZS's president and CEO, said on Tuesday's earnings call.

DZS expects supply chain constraints to continue through 2022, but does not expect them to impair DZS's long-term prospects amid rising demand for fiber network deployments and mobile transport, along with open RAN opportunities that still loom out on the horizon.

"We believe the current supply chain environment represents near-term headwinds that are not indicative of our long-term operating model and margin targets," Vogt said, noting that he does not expect supply chain problems to hinder the company's ability to deliver on the second half of 2021. To further that point, DZS raised full-year revenue guidance to a range of $330 million to $350 million, up from a prior range of $320 million to $340 million.

Meanwhile, DZS has sparked operational improvement initiatives over the past six months that are designed to boost gross margins to 40% within calendar year 2023.

Vogt said DZS is investing in sales and other aspects of the business in order to snare market share over the next 12 to 24 months, particularly in the access network and mobile transport sectors.

"We're in the early innings of a breakout investment cycle," Vogt said.

DZS is also focusing on Huawei and ZTE replacement opportunities.

RFPs focused on XGS-PON

Vogt said RFP activity is currently "dominated" by 10-Gig XGS-PON and network orchestration products. Recent results include an XGS-PON-focused deal with Consolidated Communications. "We believe this is the largest announced 10-Gig XGS-PON deployment in North America," Vogt said.

DZS is also pursuing opportunities with open RAN, but Vogt stressed that much of that activity is centered on network design rather than RFPs.

Financial snapshot

DZS posted Q2 2021 orders of $128 million, up 65% year-over-year. First half 2021 orders clocked in at $245 million, up 82% year-over-year. DZS also ended the quarter with a record backlog of $160 million, a year-on-year increase of 95%.

The company generated Q2 2021 revenues of $82.7 million, up 17.3%, with revenues for both mobile transport and broadband connectivity seeing double-digit growth.

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— Jeff Baumgartner, Senior Editor, Light Reading

A version of this story first appeared on Broadband World News.