Calix will begin U.S.-based, Tier 1 provider NG-PON2 trials, continues CORD trials

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Calix is moving fast on the NG-PON2 opportunity. A company executive confirmed during the company’s second-quarter call that it will soon begin a trial and initial deployment with a large unnamed, U.S.-based, Tier 1 service provider.   

Carl Russo, CEO of Calix, told investors that it has signed a letter of agreement with a large North American Tier 1 to begin the first year trials and initial deployments of its AXOS E9-2 platform.

Russo Calix
Carl Russo

“This deployment is NG-PON2 based and includes our routing protocol and subscriber management modules,” Russo said during the earnings call, according to a Seeking Alpha transcript. “This is the ultimate in unified access infrastructure and the realization of our long held vision of ... one network that connects the device-enabled subscribers to the content and applications in the cloud.

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Although Calix did not reveal the identity of the NG-PON2 customer trial, the vendor had previously participated in a 2016 trial with Verizon via its partnership with Ericsson alongside Adtran, Broadcom and Cortina Access. Adtran and Ericsson/Calix were chosen out of a group of six vendors that competed in the telco’s NG-PN2 RFP.

As part of its work with Verizon, Calix also demonstrated NG-PON2 interoperability with five vendors for the telco’s OpenOMCI (ONT Management and Control Interface) specification, bringing it one step closer to achieving interoperable PON network systems.

But NG-PON2 is only one element of the next-gen access network with which Calix is being active.

The vendor is also an active participant in the central office re-architected as a data center (CORD) segment, where it is conducting various trials with service providers in the United States and other regions as well as G.fast.

“Calix currently has CORD trials under way with multiple tier 1 global service providers and is one of the core companies leading the way leveraging this initiative to enable service providers to accelerate new service introduction while maintaining the highest quality of experience for their subscribers,” Russo said. “In June, Calix became the first vendor to achieve G.fast end-to-end solutions interoperability certification from the Broadband Forum.”

Focus on software, services

A key focus for Calix is its ongoing pivot to become a software- and services-based company. At the heart of Calix’s software vision is AXOS. AXOS is the vendor’s software defined access (SDA) system for virtual and physical systems.

“As we’ve been saying for some time, Calix is transforming from a wireline access systems company to a communications software systems and services company,” Russo said. “This transition has been driven by relentless innovation in our AXOS platform and our Calix cloud offerings.”

In January, announced AXOS Sandbox, a virtual environment that it claims can improve new service economics for service providers by eliminating the need for physical systems in service provider labs.

By deploying AXOS Sandbox, Calix says service providers can speed up service delivery by reducing the time needed for lab testing, BSS and OSS integration work, and software certification by deploying virtual instances of Calix AXOS systems.

While he would not cite specific numbers, Russo said that interest in AXOS is rising.

“Calix customer adoption of our AXOS platform continues to grow, having achieved double-digit growth in customer adoption, every quarter since its introduction,” Russo said.

CAF-II cost challenges

Although it continues to see momentum around its AXOS and NG-PON2 systems, Calix’s overall financial results took a hit from challenges related to its CAF-II deployments.

Previously, the vendor issued second-quarter revenue guidance to be between $122 million and $126 million. However, Calix’s actual second-quarter revenue reached $126.1 million, above the upper end of its guidance range.

Cory Sindelar, interim CFO for Calix, said that the issue that affected the guidance was associated project costs.

“The shortfall relative to our guidance was driven by higher costs than previously estimated associated with a large number of previously awarded CAF II projects,” Sindelar said. “Specifically through site assessments as part of our implementation of process improvements, we’re seeing higher than estimated levels of remaining work on these previously awarded sites, as well as incremental rework costs to complete project sites to customer and site specifications.”

Sindelar added that while Calix continues “to drive process improvements in our services business, our costs remain higher for these previously awarded sites, which had commenced prior to our optimization efforts.”

The vendor expects the bulk of older CAF-II projects for its service provider customers will be completed by the end of the third quarter.  

Here’s a breakdown of Calix’s key metrics:

Product revenue: Product revenue was $107.3 million, representing 85% of total revenue and up 7% compared to the year-ago period, driven by strong international sales.

Service revenue: Service revenue was $18.8 million, representing about 15% of total revenue and up nearly 158% from the year-ago period, as Calix completed activity on one major turnkey network improvement project and continued activity on other previously awarded large projects related to the CAF-II program

Financials: Calix reported total second-quarter revenue in 2017 was a record $126.1 million, up 17.4% compared to $107.4 million for the second quarter of 2016.

Within total revenue, Calix’s domestic revenue was 86%, representing an increase of $8.9 million or 9% year over year. International revenue was 14% of the vendor’s second-quarter revenue, representing an increase of $9.7 million or a 117% year-over-year.