CommScope continued to see lower customer orders in the third quarter, particularly in its Connectivity and Cable Solutions (CCS) and Outdoor Wireless Networks (OWN) segments.
According to CEO Chuck Treadway, the company doesn’t anticipate order rates to improve in the remainder of 2023. To that end, CommScope is revising its core adjusted EBITDA guideposts to a range of $1 billion to $1.05 billion.
“Clearly, this is a disappointing development as we look over the next few quarters,” he said on Thursday’s earnings call. “However, we continue to be bullish on our long-term growth, including general market recovery, government funding for connectivity, and cable upgrades.”
In addition to lower customer orders, Treadway said Q3 results were impacted by “larger-than-expected customer inventory corrections, customer capex reductions and the macroeconomic uncertainty.”
He touted the CCS business has “strong long-term market tailwinds,” including “significant” spending commitments to improve U.S. broadband infrastructure. CommScope has also worked to meet the Build America, Buy America requirements for government funding.
Treadway added CommScope has been “aggressive” with the cost structure in CCS, as it looks for ways to drive efficiency in the space.
“An example of an area that we are focusing on is automation,” he said. “Investment in new equipment, processes and systems can drive further efficiency and lower costs in this segment.”
“CCS will recover. It is just a matter of timing of this recovery,” he assured investors.
As for the Access Network Solutions (ANS) business, Treadway noted it’s made “a very successful” transition to a “leading supplier” of edge-related products, including nodes, amplifiers and Remote-PHY device modules.
The vendor in September unveiled a new virtualized cable modem termination system (vCMTS), which CommScope said can reach 8.7 gigabits per second in the downstream.
“Although we remain a strong supplier of our legacy CMTS technology, we continue to grow our edge business as we are in the early phases of the DOCSIS 4.0 upgrades,” said Treadway.
While CommScope is bullish on DOCSIS 4.0 rollouts, he said two “short-term” developments will negatively impact order rates and revenues in the next few quarters.
The first is inventory adjustments, as “several customers” informed the company “they are holding too much inventory.”
“In addition, some of our customers are experiencing slower-than-expected ramps on their 4.0 upgrade projects,” Treadway added.
During the quarter, CommScope announced it will divest its Home Networks business – focused on broadband gateways and set-top boxes – to France-based Vantiva.
Dell’Oro Group’s Jeff Heynen told Fierce at the time the deal is “probably the best of all outcomes not only for both companies” but also for the cable industry.
Treadway on the call said the Vantiva transaction is expected to close in late 2023 or early 2024.
“Our ownership position in Vantiva will allow us to take advantage of the combined scale of the two businesses as well as the substantial synergies the combination will deliver,” he said.
Financials
Core net sales of $1.35 billion, which exclude Home Networks, declined 32% year on year. CCS net sales dropped 37% to $632.5 million and ANS revenue decreased 36.2% to $218.3 million. Home Networks net sales plunged 36.3% to $249.4 million.
OWN net sales of $210.3 were flat year on year, while CommScope’s Networking, Intelligent Cellular and Security Solutions (NICS) unit saw a 12% YoY growth in net sales to $289 million.
Net loss attributable to CommScope common stockholders was $844.2 million, compared to a net income of $8 million in Q3 2022.