CommScope Sees Opportunities in Cable Headend Upgrades, Launches Evaluation of Portfolio

CommScope is finding that as its core cable customers deal with a rise in traffic during the COVID-19 pandemic upgrade their fiber nodes, the company has an opportunity to help them upgrade their last mile nodes to accommodate upstream capabilities.

  • CommScope

CommScope is finding that as its core cable customers deal with a rise in traffic during the COVID-19 pandemic upgrade their fiber nodes, the company has an opportunity to help them upgrade their last mile nodes to accommodate upstream capabilities.

Alexander Pease, EVP and CFO for CommScope, told investors during its fourth-quarter earnings call this new dynamic comes as cable operators have exhausted the capacity of the DOCSIS 3.1 head end investments. 

“For the individual segments, within Broadband Networks, we are seeing a fundamental change in how networks are being used as a persistent trend,” he said. “This considerable strain on the uplink will require steady and consistent investment and the pressure on the network is driving more traditional node splitting activity at a higher pace, while deferring some of the next-generation of virtualized investment.”

He added, cable customers are “pushing the investments into the node.”

Specifically, cable operators are using what’s called a high split, which expands the available upstream spectrum. Earlier this year, the vendor released a series of new transmitters and receivers that enable a "high-split" that expands the spectrum available for the upstream to 204MHz.

By implementing a high split with digital return, operators will be able to consistently deliver higher upstream bandwidth and faster upload speeds, irrespective of link distance.

CommScope’s timing could not be any better. According to the NCTA COVID-19 Dashboard, peak upstream usage on US cable networks has climbed about 50 percent since March 2020.

Morgan Kurk, EVP, CTO and segment leader, Broadband Networks for CommScope, said operators have focused on enhancing the upstream part of their networks.

“COVID-19 has driven us to the point of a breaking, particularly in the uplink, there is so much less spectrum allocated to the uplink at this point that our operator customers have had to split nodes and make smaller user groups that are sharing that uplink capacity that's node splitting and that's largely hardware,” he said. “And as such, more of the capital has been pushed toward that physical equipment.”

Eying RDOF Opportunities

Satisfying node growth is just one element that CommScope is eying for revenue growth opportunities. The company also sees the potential that the FCC’s Rural Digital Opportunity Fund (RDOF) could have for its business.

Several cable operators, including Charter, are in line to get large amounts of funding from this program.

Charter, for one, won $1.2 billion in the FCC’s reverse auction. The cable MSO was awarded $1.22 billion in the auction. Charter secured funding for 24 states, which was the most in the auction, and will provide its service to more than 1 million locations. Charter expects to invest about $5 billion to support its buildout initiative--offset by $1.2 billion in support won from the RDOF auction--expanding Charter's network to lower-density, mostly rural communities that do not have access to broadband service of at least 25/3 Mbps.

“There is also an increased demand for ubiquitous high-speed, low-latency broadband funded in part by the Rural Digital Opportunity Fund (RDOF),” Pease said. “This represents another significant opportunity for CommScope in the back half of the year, as those investments begin to ramp.”

Setting New Growth Strategy

Now that Chuck Treadway is settled into his new job as CommScope’s CEO, he has set a new path for the company. Treadway took over the CEO reins in October, replacing Eddie Edwards, who served in this role for 15 years.

Under the CommScope NEXT strategy, the company will focus on three main pillars:

  • Delivering growth: The company’s leadership opportunities for profitable growth that include vertical market strategies designed to gain market share, capacity constraints in its factories to deliver more products, investing in international expansion and enhancing channel relationships and development of critical technologies.
  • Business optimization: CommScope NEXT will address business optimization, initially evaluating and reducing non-value-added costs.
  • Evaluating business segments: The company will actively evaluate the health of its full portfolio of products and business.

Treadway emphasized that while CommScope NEXT is a clear vision, it will take time before the benefits are seen. The company plans share additional more details on the plan and our financial goals later.

“We will not see the impact of this initiative immediately,” he said. “In some cases, it will take quarters and others longer.”

He added, “as COVID-related restrictions on travel, marketing and other business activities subside, we will see some costs coming back into the business,” so it “will be one of the jobs of CommScope NEXT to accelerate path to short-term headwind.”

Q4 Hits and Misses

CommScope may have a plan for future growth, but in the fourth quarter CommScope saw mixed results across its key units. While the broadband networks segment was a clear leader, the vendor saw declines in home networks and venue and campus networks.

Here’s a quick rundown of CommScope’s key metrics:

Broadband Networks: Growth in Network Cable & Connectivity and Network & Cloud drove up sales 17.3 percent year-over-year to $789.3 million.

Home Networks: While CommScope reported strong growth in broadband gateway business, this was more than offset by declines in video. As a result, Home Networks sales declined 31 percent due to declines in Home Media Solutions. These results were partially offset by growth in Broadband Connectivity Devices.

Outdoor Wireless Networks: Driven by growth in Macro Tower Solutions, Outdoor Wireless Networks sales were $294.7 million, up slightly by 1.1 percent from prior year. However, the earnings were partially offset by declines in Metro Cell Solutions.

Venue and Campus Networks: Due to declines in Indoor Copper Enterprise and a moderate decline in RUCKUS Networks, net sales were $476.8 million, down 6.6 percent from last year. CommScope said results were partially offset by growth in Indoor Fiber Enterprise and DAS and Small Cell.

Revenues: Net sales in the fourth quarter of 2020 decreased 7.3 percent year over year to $2.13 billion. The company attributed the decline primarily to year over year decreases in the Home Networks and Venue and Campus Networks segments.

(To keep up with the Q4 broadband earnings, make sure to check out our new report From AT&T to Verizon: Sizing up Q4 Broadband 2020 Earnings)

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