Dell’Oro Group analyst Jeff Heynen has revised his five-year forecast for global spending on broadband access equipment and CPE, and is now estimating that the market only dropped 2% in 2020. 

Heynen’s latest estimate, highlighted in a Dell’Oro Group blog posting, revises a prediction made last summer that the market would drop 7%. In fact, this was Heynen's second revision of his 2020 forecast--pre-pandemic, in January of last year, he had the market dropping by 5%. 

"The combination of significant residential subscriber growth and increased capacity utilization rates noted by global broadband providers nearly offset the negative impacts of trade tussles, component shortages, and labor limitations," Heynen wrote. 

"In the first half of 2020, we heard from countless service providers that their projected capacity utilization rates for the entire year were reached by March or April,” he added. “A second surge in consumption in the fall, driven by children returning back to school and attempts at re-opening economies forced many operators to add even more capacity. With much of the world still dealing with the impacts of the COVID-19 pandemic and with remote work and online education continuing well into 2021, we see no slowdown in broadband capacity utilization, forcing service providers to once again balance accommodating traffic growth with managing overall spending."

For cable operators, Heynen said the ample DOCSIS channel capacity that spiked network access equipment revenue in 2018 and 2019 helped operators as they sought to address sudden spikes in both upstream and downstream usage. 

“In most cases, cable operators used the software tools available as part of DOCSIS 3.1 to ensure adequate bandwidth for all subscribers. In other cases, operators purchased additional DOCSIS licenses as part of accelerated node split programs to address systems with the greatest need,” Heynen wrote. 

“Regardless, after two years of under-investing in infrastructure, the overall cable infrastructure market will see a steady increase in revenue throughout our forecast period, as mid- and high-split projects in North America and Western Europe, designed to increase upstream capacity, are accelerated. Investments in outside plant equipment, particularly new amplifiers and taps, will also continue as operators begin the multi-year process of preparing their networks for DOCSIS 4.0 and its ability to enable extended spectrum DOCSIS (ESD), low-latency DOCSIS, and full-duplex DOCSIS (FDD),” Heynen added.

Sales of broadband access equipment to cable operators declined for a third straight quarter, by 8% to $219 million in Q2, according to Dell’Oro Group.

The research company once again attributed the drop to slow CCAP licensing sales in North America, with cable operators continuing to pause on network capacity expansions while they keep mulling transitions to Distributed Access Architecture. 

Globally, however, total broadband access equipment sales were up 6% to $3.3 billion, with spending increasing on passive optical network (PON) gear, particularly in the EMEA region, where equipment revenue hit $876 million. 

“Fiber expansion projects continue to expand around the world, as evidenced by continued strong demand for OLT ports,” said Jeff Heynen, senior research director of broadband access and home networking for Dell’Oro Group. “The sustained fiber investments are a clear sign that providers realize just how critical premium residential broadband access is to their business,” Heynen added.

Speaking to Investors during Harmonic’s first-quarter earnings call, CEO Patrick Harshman declared his company’s intention is to be “No. 1” in the cable access-network technology business, displacing incumbents Arris/CommScope and Cisco Systems.

But like an NBA team tied in the closing minutes of a playoff game seven, Harmonic faces some nervous moments as it seeks its title. The tech vendor is waiting for Tier 1 clients to get done with trials of its CableOS and actually start deploying the virtualized cable access product.

As leading operators such as Comcast move towards Distributed Access Architecture (DAA) and virtualization of key network components, San Jose, California-based Harmonic stands to seize sizable market share with its DAA-focused fiber nodes and CableOS virtualized cable access product, which turns giant pieces of hardware like the cable modem termination system into software.

“Harmonic has quite a bit of momentum; they’re really pushing the envelope in terms of distributed access technology,” analyst Jeff Heynen, research director of broadband access and home networking for the Dell’Oro Group, said.

CableOS Tests Wrap Up

Harmonic has said four of the top eight cable operators in North America and Europe are engaged in commercial trials of CableOS, one of which is widely known to be Comcast. The company also said it has 32 commercial deployments and field trials of the product currently underway, and that 670,000 cable modems are now tied to CableOS, up 24% from the fourth quarter.

In March, Harmonic announced a pact with the National Cable Television Cooperative to jointly offer the virtualized cable access solution to the co-op’s more than 750 members.

Harshman said one large foreign operator signed a $50 million contract for CableOS.

Unfortunately, Harmonic’s bottom line has yet to reflect this momentum. First-quarter revenue was off 11.1% year-over-year to $80.1 million. Notably, revenue from cable-access products was down more than 30% to $12.9 million.

Harmonic has offered shareholder guidance that cable access revenue will range from $100 million to $130 million for the year and needs to see business pick up significantly in the ensuing three quarters to come through.

Harmonic isn’t alone. Competitor Casa Systems, which reported a 56% Q1 revenue slide last week, also says it’s in a “holding pattern,” waiting for MSO customers to get off the dime with emerging access tech.“We’re seeing an industrywide slowdown as cable operators implement a shift to virtual CCAP and DAA,” Casa Systems CEO Jerry Guo told investors, describing a “quarter we’re not at all happy with.”

For his part, Harshman spent much of the April 29 earnings call assuring investment analysts that major deployments of CableOS are coming, starting in the second quarter.

“There were a couple of major architectural change decisions made by our lead customers,” the CEO said, explaining the deployment delays. “And going into the beginning of the year, frankly, there was a little bit of uncertainty about the exact time frame that those could be implemented and how we would kind of get back on track. But the good news is, all that work is just about done, and we feel as though we’re largely currently getting back on track.”

Harshman assured investors his confidence stems from hard evidence. “We’re not just talking about verbal dialogues here, we’re talking about very detailed spreadsheets,” he said. “And frankly, plans that we’re investing in.”

One analyst asked if the deployment delays could be caused by an unforeseen cable access competitor making a late-game play against Harmonic.

“We don’t know what we don’t know,” Harshman conceded. “We have not heard of anything else being demoed in the lab, successfully and competitively. It’s prudent not to be overconfident. But it’s hard to imagine, frankly.”

A Big Market to Fight Over

Harmonic and Nokia, which also serves the DAA and virtualization market, are competing for a big prize. Heynen said the cable access market was worth $1.5 billion in 2018 and is growing at a single-digit but still nice pace.

As the analyst explained to Multichannel News, the benefits of virtualization and DAA are myriad. “You can save on rack space, you save on power consumption and you save on hardware costs,” Heynen said. “Comcast is going to be a big driver of DAA. The question is, how fast does Comcast move?”

That’s a question that Harmonic shareholders would certainly like to have answered themselves.

Rising prices on memory will continue to have an adverse effect on Arris’s set-top box business this year, though perhaps not quite as much as they did in 2017.

“Increased DRAM prices have clearly affected ARRIS, degrading EBITDA by over $100 million in 2017,” Simon Leopold, analyst at Raymond James, pointed out in a research note based in part on his discussion yesterday with Arris CFO Dave Potts at the firm’s 39th Annual Institutional Investors Conference. “Although the rate of increasing costs has slowed, ARRIS is not anticipating a reversal in 2018.”

He noted that much of the DRAM used by Arris goes into set-tops, which contribute about 45% of sales.

Arris has already started to outline how it will address the memory cost issue and drive more efficiencies into its CPE business, noting last month that it will be “more selective” with set-top deals, with an emphasis on profitability more so than sales growth.

RELATED: Arris to Be ‘More Selective’ With its Set-Top Box Business

Likewise, Arris is “in extensive discussions with customers to adjust pricing to reflect increased memory costs, and are being increasingly more selective on the projects that we pursue,” Bruce McClelland, Arris’s CEO, said on the company’s Q4 call last month.

Though set-tops are a big part of Arris’s business today, the company has been branching out to adjacent areas, like mobile and wireless and enterprise, via its acquisition of the Ruckus Wireless and ICX Switch businesses from Brocade soon after Brocade’s merger with Broadcom.  

Such moves give Arris “exposure to an adjacent market and helping it drive growth and provide diversification,” Leopold noted, adding that the company reiterated a growth expectation of 20% year-on-year in that segment as wireless marks a “natural progression” for Arris.

He added that Arris also expects the mix of sales to cable operators to shift to network investments and transmission products and away from set-tops and other CPE, with an expected benefit going to sales of Arris’s converged cable access platform (CCAP) gear and software and as MSOs start to move to distributed access architectures.

And Potts reiterated Arris’s stance that M&A will continue to be consideration in Arris’s growth strategy, though plans for capital allocation will be balanced to include buybacks, Leopold said.

"Yes, I think M&A will continue to be part of what we do," Potts said, according toLight Reading. "What I worry about in five years from now if we aren't continuing to add, what is it that we will have? Who will we be as a business?"

Casa Systems’s IPO has apparently had a run-in with Dr. Shrinker.

Casa Systems, a maker of cable access and wireless network gear and software, said it has reduced the opening price of its IPO to $13 per share and cut the number of shares being offered to 6 million.

Casa Systems, which begins trading today on Nasdaq under the “CASA” ticker, announced plans earlier this month to offer about 8.4 million shares at $15 to $17 each.

UPDATE: Shares in Casa rose $1.40 (10.77%) Friday, closing at $14.40 each.

RELATED: Casa Systems IPO to Raise Up to $164.22M

Under the current plan, Casa Systems aims to raise about $78 million, well off the $164.2 million originally envisioned.

Casa Systems has also granted underwriters a 30-day option to buy up to 900,000 additional shares of stock at the IPO price. It added that Summit Partners, the company’s largest stockholder, has interest in acquiring up to 250,000 shares in the offering, “but in no event an amount that would have the effect of Summit Partners being the beneficial owner of 50% or more of Casa’s outstanding shares following the offering.”

Company president and CEO Jerry Guo has also expressed in interest in purchasing 100,000 shares in the offering, set to close on Dec. 19, 2017.

Morgan Stanley & Co. and Barclays Capital Inc. are acting as joint book-running managers for the offering, with Raymond James & Associates, Stifel, Nicolaus & Company, Macquarie Capital (USA), Northland Securities, Inc. and William Blair & Company acting as co-managers.

Casa, which has been pairing its wired network infrastructure portfolio with wireless systems, competes with vendors that include Arris, Cisco Systems, Harmonic, Huawei, Vecima Networks, and Nokia, which recently acquired virtual CCAP startup Gainspeed.

RELATED: Nokia Closes Gainspeed Buy

Casa’s customers include Charter Communications (coming way primarily from Charter’s  acquisition of Time Warner Cable), Rogers Communications and Mediacom Communications in North America; Televisa/IZZI Mexico and Megacable Mexico; Claro Telmex Columbia; Liberty Global, Vodafone and DNA Oyj; and Jupiter Communications and Beijing Gehua CATV Networks in the Asia Pacific region.

Casa generated revenues of $233.6 million through the first nine months of 2017 (with $125.3 million from North American customers), up 7.7%, and net income of $59.6 million, up 22% versus the corresponding year-ago nine-month period.

U.K.-based Pace has received the required shareholder approvals at the court and general shareholder meetings held Thursday in connection to its proposed $2.1 billion merger with Arris.

Arris stockholders holding 129,714,934 shares, representing approximately 88% of outstanding Arris shares as of the record date (September 10, 2015), approved the deal on Wednesday.

Arris sees the deal closing in “late December or the first quarter of 2016” amid additional requests from the U.S. Department of Justiceand regulators in Brazil and Colombia that could pave the way for conditions that Arris divest part of the optical transmission business of the combined company. 

Driven by broadband speed upgrades, shipments of DOCSIS channels rocketed to a record 4.8 million worldwide in 2014, a year-over-year increase of 114%, according to Infonetics Research’s latest report on the cable access tech market.

Cable access gear – a category that includes cable modem termination systems (CMTSs), converged cable access platforms (CCAPs), edge QAMs and coaxial media converters – grew 27%, to $1.7 billion, in 2014. Fourth quarter revenues totaled $493 million, an increase of 11%.

Shipments in North America were particularly strong, rising 139% in 2014, with revenues jumping 35%.

But it wasn’t a rosy year for all makers of DOCSIS-powered networking gear. While Arris dominated the market with 48% of global revenue in the sector and Casa Systems turned in a record year, with a revenue increase of 195%, Cisco Systems “had one of its most disappointing years for CCAP/CMTS sales,” Infonetics said.

Infonetics noted that 2014 will be remembered as a “transitional year” as MSOs started to switch from traditional CMTSs to provisional deployments of CCAPs, which are higher-density, power-saving platforms that will combine the functions of the CMTS and edge QAM and pave a path toward an all-IP infrastructure.

From 2013 to 2014, CCAP revenue increased 997% percent, to $1.4 billion, while CMTS revenue dipped 84%, to $155 million, according to Infonetics.

"The continued growth of DOCSIS channel shipments is a strong sign of multiple system operators' (MSOs') ongoing investment to ramp DOCSIS bandwidth and services like IP video by splitting optical nodes and reducing service group sizes via CCAP," said Jeff Heynen, principal analyst for broadband access and pay TV at Infonetics Research, in a statement, noting that channels expansion will continue as operators prepare for DOCSIS 3.1 and remote-PHY platforms, though most growth will come from CCAP products.

But there are bumps in the road, with the pending merger between Comcast and Time Warner Cable threatening to exacerbate usual first quarter slowness. With that in mind, Infonetics expects DOCSIS and edge QAM channel shipments to drop 7% in Q1.