Eighteen months after it first announced plans to spin off its struggling division that makes pay TV set-top boxes and home internet gateways, telecom tech vendor CommScope said it'll remain stuck with its Home Networks unit for the foreseeable future. 

Speaking to equity analysts late last week during CommScope's third-quarter earnings report, CEO Chuck Treadway said the company will now implement a "transformation plan" for Home Networks, as the divisions remains vexed with issues ranging from a sustained global chip shortage to the negative impacts of foreign exchange rates. 

Beyond that, Home Networks has been challenged by shrinking demand for so-called "Customer Premises Equipment" (CPE), with pay TV set-top box sales declining for the better half of the last decade, and internet gateway demand starting to drop, too. 

Revenue for CommScope's Home Networks division was down 6% in Q3 to $391 million. Adjusted EBITDA did improve from a loss of $16 million a year ago to a loss of $5 million in the most recent quarter. 

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With cable operators ramping up their network technology purchases ahead of a major upgrade cycle, net sales were up 28% in Q3 to just over $1 billion in CommScope's core business sector, "Connectivity and Cable Solutions." Adjusted EBITDA was up 55% year over year to $188 million. 

But investors reacted to the news about the Hickory, N.C.-based tech company's inability to spin off Home Networks into a stand-alone publicly traded company. (Notably, CommScope CPE rival Technicolor just spun its set-top business out into a new public offering called Vantiva.)

CommScope shares are down nearly 27% from late last week. ■

CommScope is moving forward with the broad-sweeping reorganization plan announced during its fourth quarter earnings report, announcing this week that it will spin off its Home Networks division, which makes pay TV set tops, routers and modems.

The Hickory, N.C.-based technology company expects the spinoff to be completed by the end of the first quarter of 2022. Joe Chow, who has led the Home Networks segment since late 2019 under a senior VP title, will be the CEO of the new publicly traded company. 

“We looked at the differences between Home Networks and the rest of our segments, and those differences were pretty stark,” said CommScope CEO Jeff Treadway, speaking during a conference call with investor analysts on Thursday. “You’re looking at 10%-plus margins vs. much higher margins on the other side. And in terms of manufacturing volume, you have tens of millions of units vs. hundreds of thousands.”

Treadway also noted that manufacturing is done in-house for most of CommScope’s other divisions, while Home Networks releases on contract manufacturing. 

Notably, Home Networks—which sells modems, gateways and pay TV set tops to both operator and retail channels—saw a 31% Q4 sales decline to $571 million. Cord-cutting continues to have an impact in the pay TV sales chain beyond the operator level. 

Home Networks was one of the pieces brought into the CommScope fold with the acquisition of Arris, which was announced in October 2018 and completed in 2019.

Home Networks accounted for 28% of CommScope’s $8.4 billion in revenue in 2020. It was the company’s second biggest unit behind Broadband Networks. 

With the spinoff, CommScope will retain not only its Broadband Networks division, which supplies technology infrastructure to telecom operators all over the globe and saw sales increase by 17% to $789 million in the fourth quarter, but also its Venue and Campus Networks division, and its Outdoor Wireless Networks unit. 

Treadway described the plan as being in the “early innings,” and it could be interrupted by a variety of factors, a sale among them. 

The spinoff is the first major move under the company’s CommScope NEXT initiative, which Treadway described as a “comprehensive set of company-wide actions designed to take CommScope to the next level of profitability.”

Also included in that initiative will be a series of “cost reductions actions,” which will be announced at a later date. 

CommScope has laid off approximately 160 employees across its Home Networks division, as sales of one of the unit’s primary products, pay TV set-tops, decline.

Chatter among current and former CommScope employees on TheLayoff indicates that CommScope’s entire video customer premises equipment (CPE) staff based Horsham, Pennsylvania has been let go. Layoffs among CommScope Home Networks employees in San Diego have also occurred, according to message board postings.

"CommScope continuously monitors evolving marketplace conditions as a matter of business practice,” the Hickory, N.C.-based CommScope said in a statement emailed to MCN Tuesday. “We review our entire business to make our organization lean and agile, and to leverage global growth opportunities. Across the industry, there has been a significant decline in service provider investment in video programs, as the result of continued reduction in PayTV subscriptions, increased competition from over-the-top services, and the transition to lower-cost video devices.”

CommScope, Technicolor and other original equipment manufacturers (OEMs) servicing the pay TV set-top business are under pressure from video cord cutting affecting their cable, satellite and telco operator clients. These customers lost more than 5 million linear TV subscribers in 2019.

Concurrently, the days of the multi-tuner, multi-gigabyte DVR set-top are on the wane.

With what remains of their video businesses, CommScope’s operator clients are moving to OTT-centric models that utilize, in many cases, consumer grade video streaming devices such as Roku and Amazon Fire TV. Proprietary set-tops, meanwhile, have in other instances been reduced to thin-client devices running Android TV middleware.

CommScope got into the video CPE business in 2018 with its $7.4 billion purchase of Arris.

“Home network space is a significant challenge this year as operators and carriers continue to deal with material subscriber losses,” noted CommScope CFO Alexander Pease in February, projecting a 20% sales decline for Home Networks sales in 2020.

“We are taking steps to reduce our current workforce in our Home Networks segment to instill greater efficiency, cost-competitiveness and focused innovation in areas with long-term growth opportunity,” CommScope added in its statement. "We plan to lead in the transformation of the digitally connected home, leveraging our core skills in systems, software, and hardware to create and connect a device ecosystem that enables new services and solutions, transformational consumer experiences, and profitable new business models. We are committed to positioning Home Networks to be a healthy, competitive business moving forward."