Broadband equipment vendor Adtran should be one of the chief beneficiaries of Broadcom’s settlement with the Federal Trade Commission over monopoly charges, the result of which could lower chip expenses going forward for Broadcom customers like Adtran.
That’s the assessment of Cowen & Co. whose analysts issued a research note suggesting that Adtran will benefit — perhaps not immediately, but in the long term — from the settlement through a lower cost of goods sold (COGS), which in turn should translate to better cash flow and higher gross and operating margins. Cowen explained that silicon expenses represent as much as 50% of equipment suppliers’ COGS, and it further estimated Broadcom alone could account for more than 25% of Adtran’s silicon and corresponding COGS.
“To be clear, while difficult to quantify, we expect the impact, once it commences, to be meaningful in terms of incremental gross margin and thereby annual EPS and cash flow,” Cowen analysts wrote. “Commencing around CY23, we think the benefit could be ~ 1 - 2 percentage points to ADTN’s pro forma gross margin, which in turn could drive an incremental ~ $0.10 – 0.19 to our current CY23 PF EPS estimate, which, ceteris paribus, could increase our already Street-high CY23 PF EPS forecast to $0.90 - $0.99.”
A settlement between Broadcom and the FTC was announced last week, closing out a saga during which the chip giant was accused of holding customers to exclusive supply deals. The company has since changed its business practices.
The Broadcom settlement was not the only recent bit of good news for Adtran. The vendor announced in recent weeks that its Combo PON broadband access technology had been adopted by more than 100 operators in the first year since it launched.
Combo PON supports both GPON and XGX-PON customers while service providers work on projects to migrate customers of the former technology to the latter. “Adtran introduced Combo PON to close the debate on whether to deploy GPON or XGS-PON FTTH technology by providing a simplified and cost-effective network strategy just as carriers of all sizes, in all markets were focused on building new fiber networks,” said Robert Conger, senior vice president of technology and strategy at Adtran, in a statement. “The proof of how relevant and impactful Adtran's Combo PON has been in addressing this market demand is the unprecedented customer momentum we are witnessing.”
The company further highlighted its Combo PON success by unveiling use cases involving the technology as deployed by New Lisbon Broadband and Communications (NLBC) and Pennsylvania Telephone Company (PTC). Those companies are using Adtran’s Total Access 5000 (TA5000) 10G fiber access platform and the Combo PON technology to modernize existing brownfield fiber networks to support broadband for residential and business customers.
A press release detailing these use cases stated that both NLBC and PTC will use Combo PON technology to deliver both Gigabit-capable PON and multigigabit XGS-PON FTTH over a single common optical distribution network, deploying it through their existing cabinets.
“This allows for an elegant transition to next-generation XGS-PON speeds of up to 10 Gbps,” the release stated. “With Combo PON, PTC will utilize its existing fiber backbone and immediately launch Gigabit-capable services to reach 70% of all customers without laying any additional fiber. The service provider plans to run new fiber cable to the remaining 30% of customers over the next five years. NLBC will utilize the Combo PON technology in their RDOF area with Gig-capable service initially and upgrade to XGS-PON when the need arises.”
Adtran also released two other use cases this week, one detailing how cable operator Armstrong chose Combo PON over traditional EPON to deliver multi-gigabit services across its six-state service coverage area; the other outlining Pennsylvania-based Centre WISP’s use of the vendor’s RDOF Technical Assistance Planning Services Portfolio and Combo PON technology.