Inventory buildup hinders CommScope’s revenue growth

For the first quarter of 2024, CommScope delivered net sales of $1.2 billion, a decrease of 30% year-over-year, and adjusted EBITDA of $153 million, a decrease of 51% year-over-year.

“Our first quarter continued to be negatively impacted by lower market demand and larger-than-expected customer and channel inventory buildup,” said Treadway. “As I’ve mentioned in past calls, we continue to control what we can and navigate macroeconomic challenges that impact our businesses.”

Treadway reported that, in response to the difficult quarter, CommScope is managing its cost structure.

Connectivity, broadband normalize

For Q1, the connectivity and cable solutions (CSS) business saw stronger ordering patterns.

In its broadband business, order patterns are normalizing, and order rates are growing as service providers work through inventory.

“Much of our research suggests that fiber-to-the-home passings in the United States remained at historic levels thus the need to refresh inventory,” he said. “As we look forward to the government BEAD funding initiatives, we have launched hundreds of Build America, Buy America qualified products. These products and solutions are positioned to capture the long-term market tailwinds supporting broadband infrastructure projects that are expected to start late in 2024 and into 2025.”

“We saw an increase in order rates from the fourth quarter of 2023 to the first quarter of 2024,” he said. “Although this is a positive sign, we continue to lag well behind historical revenue levels.”

CSS net sales for the quarter were $605 million, down 26% year-over-year, and adjusted EBITDA was $95 million, a 37% decrease year-over-year. This decline Lorentzen attributed to the broadband business.

“We continue to see increases in order rates during the quarter,” he said. “On a sequential basis, revenue was up 9%. Despite the pickup in order rates, these rates remain low relative to historical levels in 2021 and 2022. Although CCS order rates improved and customer conversations remain bullish on medium- and long-term growth, the short-term demand profile remains uncertain.”

Access network solutions (ANS) net sales were reported as $187 million, a 38% decrease year-over-year, and an adjusted EBITDA of $15 million, a 68% decrease year-over-year. This was attributed to customer inventory adjustments and upgrade delays.

“As mentioned on our previous call, several of our large customers approached us about lowering order rates as they dealt with higher inventory levels and delayed timing on upgrades,” said Lorentzen. “This had an impact on our first quarter revenues. Also, we expect these adjustments to have a significant impact throughout 2024.

Positioning for growth

Despite the short-term challenges, ANS continues to position itself to take advantage of the DOCSIS 4.0 upgrade cycle.”

Lorentzen reported that, despite the difficult quarter, CommScope is positioned for growth.

“As we have said throughout the downturn, we remain bullish on medium- and long-term growth in all of our segments. However, visibility to the timing and magnitude of the recovery remains unclear.”