Analysts from Dell’Oro Group warned 2023 could be ripe for CPE inventory corrections, thanks in part to lower than expected broadband deployment targets and a slowdown in activity that normally drives broadband growth. A press release from Adtran this week indicates the trend may have already begun.
Adtran on Monday lowered its Q1 2023 revenue guidance from an original range of $355 million to $375 million to between $322 million and $326 million. CEO Tom Stanton cited “growing customer concerns over inventory stocking levels” as the reason for the change and said the issue primarily impacted its Subscriber Solutions line of CPE products rather than its Access and Optical Networking offerings.
As of Q4 2022, Subscriber Solutions was Adtran’s second largest business category, with $120.3 million in revenue. Optical Networking accounted for $142.2 million in revenue while Access and Aggregation contributed $95.7 million.
Dell’Oro Group VP of Broadband Access and Home Networking Jeff Heynen told Fierce Adtran has a strong presence in the U.S. market, but much of its recent growth has come from Europe. In Q4, the U.S. accounted for around 40% of revenue, with remainder coming from International revenue driven by strength in Europe. But because of the types of customers it has in each market, Heynen said it’s more likely the Q1 warning is related to a pullback from a large European operator.
“Adtran is a pretty big deal in the U.S. CPE market, but it’s spread out across more operators,” he said, adding those are mainly Tier 2 and 3 players. “They wouldn’t all pull back together to warrant a change [in Adtran’s guidance].” Given recent growth has been focused in Europe, it’s more likely the pullback happened there, he added.
The vendor counts German operator Deutsche Telekom and BT in the U.K. among its major customers in Europe. In November, the Financial Times reported BT’s Openreach fiber division – which is aiming to reach 25 million locations by 2026 – was planning to pull back on long-term investments and instead focus spending on projects less than six months out as part of a cost cutting strategy.
Deutsche Telekom is striving toward a goal of reaching 10 million passings by 2024. To date, it doesn’t appear to have given any indication it is slowing down.
Course correction
Jimmy Yu, Dell’Oro VP in charge of the firm’s Optical Transport research, said he’s long been warning a course correction was imminent in terms of inventory. “As the supply chain eases, we’ll have these inventory corrections, whether it’s from the end customers or system vendors,” he said.
The trend seems to have kicked off with optical component supplier Lumentum, which said last week its forthcoming quarterly results would come in lower than expected due to an order pullback from a major customer.
As Adtran’s announcement implies, Heynen told Fierce the CPE market could also be in for some inventory correction activity in 2023.
“Given the macro-economic situation, people aren’t moving as much, they’re not building new homes, so a lot of natural drivers of [broadband] subscriber growth aren’t happening,” he explained. “Also, with homes passed goals coming down in the short term, that also might warrant reductions in the need for new CPE as well.”