CommScope says BNS acquisition will strengthen its FTTX opportunity

CommScope said that its recently completed acquisition of TE Connectivity's Broadband Network Services (BNS) assets will help it expand, particularly in the fiber-to-the-x (FTTX) segment. 

Speaking to investors during the third quarter earnings call, Mark Olson, CFO and EVP for CommScope, said that the addition of the BNS division will strengthen its broadband business. 

"We expect demand for our Broadband products to continue to be influenced by competition among service providers, ongoing maintenance and upgrade requirements, consolidation in the broadband service provider market and activity in the residential construction market," Olson said during the earnings call, according to a Seeking Alpha transcript. "Additionally, we believe the BNS business will further strengthen our broadband business by providing leading fiber-to-the-X technology."

Overall, CommScope's third quarter segment earnings were a mixed bag with the broadband and wireless declining, while the enterprise segment saw sales increase.

Broadband segment sales dipped 14 percent year-over-year to $128 million, a factor the company attributes to lower investment in the Central and Latin America regions, as well as reduced sales in North America. The segment's adjusted operating income also declined to $18 million, or 14 percent of broadband sales. 

The company said the decrease was primarily due to lower sales, partially offset by lower material costs and the benefit of cost reduction initiatives. However, FTTX growth by North America service providers partially mitigated the declines.

"BNS revenue was negatively impacted by foreign exchange rate changes, reduced wireless spending at certain North American operators, as well as enterprise and telecom sales in the Europe, Middle East and Africa regions," Olson said. "These decreases were partially offset by telecom fiber growth in North America."

Olsen added that CommScope expects the BNS segment will get a boost from upcoming FTTX and data center deployments. However, declines in copper-based solutions will continue to be a drag on the BNS business.

"We expect the BNS segment to be positively affected by the global deployment of fiber optic solutions for fiber-to-the-X and data center applications," Olson said. "The growing demand for fiber solutions is expected to be somewhat offset by decelerating demand for copper solutions in networks."

Following robust spending in 2014, the wireless segment sales saw the largest drop, with sales declining 25 percent year-over-year to $475 million due to lower spending by wireless operators in a number of the major geographic regions. CommScope said that despite lower sales volumes, Wireless adjusted operating income was $99 million, or 21 percent of Wireless sales, for the quarter. 

Similar to the acquisition of the BNS assets, CommScope said its acquisition of Airvana will enable it to attack new in-building wireless opportunities.

In addition to enhancing its in-building wireless capabilities announced, Airvana will give it new Cloud-RAN (C-RAN) deployments.

"This acquisition will expand CommScope's leadership and capabilities in providing indoor wireless capacity and coverage, an increasingly important market opportunity that is growing due to consumers' and business' insatiable demand for wireless data," Olson said. "The combination of Airvana's innovative small cell offerings and CommScope's industry-leading DAS portfolio will enable CommScope to provide a broader range of solutions, addressing single-operator, single-band, low capacity environments all the way through multi-carrier, multi-technology, high capacity environments."

Driven by strong sales of data center fiber solutions and growth in most major geographic regions of the world, enterprise segment sales increased 4 percent year-over-year to $228 million. In particular, higher fiber sales to data centers contributed to a 31 percent year-over-year increase in operating income to $58 million.

Looking forward to the fourth quarter, CommScope has forecast revenue will come in between $1.1 to $1.2 billion and adjusted operating income of $175 million to $205 million. For the full year, it expects revenue to be in the range of $3.79 to $3.87 billion.

CommScope reported overall sales of $973 million, including BNS revenue of $141 million, and a net loss of $81 million, or $0.42 per share. The company said the net loss includes impairment charges, costs associated with the Broadband Network Solutions (BNS) acquisition and other special items.

For more:
- see the earnings release
- and the earnings transcript

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