After struggling to find its financial footing during the
latter half of 2011 and all of 2012, broadband communications
) has delivered robust growth this year amid an improvement in
its end markets .
The company looks to continue the trend when it reports
third-quarter results after the close on Tuesday.
Calix provides broadband communications access systems and
software for fiber- and copper-based network architectures. The
gear lets communications service providers, or CSPs, connect to
residential and business subscribers in North America.
The company gets more than 80% of its revenue from the U.S.
Its top customer, CenturyLink, accounted for about one-fifth of
Calix's revenue last year.
Calix is one of the leaders in a fairly small and narrow niche
that has been estimated at around $7 billion globally, according
to data cited by Stephens Inc.
Other players in the field includeAlcatel-Lucent (
) andArris (
). Of those companies, Calix is the smallest with $330 million in
revenue last year. That compares to $18.8 billion
), the French telecom giant with a much more diverse revenue
Arris, which also makes fiber-optic cables, routers, modems
and other gear, had 2012 revenue of $1.35 billion. Adtran had
2012 revenue of $621 million.
In its niche market, however, Calix is a top player.
The company ranks as one of the three largest vendors of fiber
access equipment in the world, according to comments made by
Geoff Burke, Calix's senior director of corporate marketing,
during a presentation last month at the Deutsche Bank dbAccess
Technology Conference in Las Vegas.
In addition, Burke said, Calix is the "leader" in North
American fiber access revenue as well as broadband access
"This equipment is specialized," he said. "It puts us in a
very unique position in terms of the types of engineering we do
and our alignment with our customers, who basically rely on us to
ensure that their networks are up and constantly running."
Calix is in a quiet period and wouldn't provide direct
The company's business has been good, at least lately. Calix's
earnings during the first two quarters of 2013 more than tripled
from the same period the prior year. Sales rose 18% during the
first half of the year.
Analysts expect third-quarter profit to come in at 14 cents a
share, up from 4 cents a year earlier. Revenue is seen rising 28%
to $104.35 million, which would mark the biggest top-line gain in
Calix's recent results represent a big turnaround from the
previous year-and-a-half, when it logged six straight quarters of
lower earnings and five quarters of flat or lower revenue.
It wasn't alone in seeing its financial returns decline.
Adtran also had a period of six straight quarters of lower
earnings and four straight quarters of lower or flat revenue.
One problem had to do with the transition from the Universal
Service Fund (USF) to the Connect America Fund (
), both of which were established to help finance more telecom
and broadband infrastructure in the U.S.
The USF was created by the Federal Communications Commission
in 1997 to help fund programs that give more Americans access to
phone service and Internet connections. The FCC got involved
because it wasn't economical for private companies to build
networks to certain areas, especially remote, rural parts of the
Money for the USF comes from fees paid by businesses and
consumers on their long-distance bills. But that revenue base has
been declining, leading the FCC to establish the CAF to support
the expansion of broadband services to areas without broadband
During the initial stages of the transition, however, carriers
in Tier 2 and Tier 3 markets cut back on their capital spending
because of uncertainty over how the programs would proceed.
Those markets have begun to recover this year. Spending by
U.S. Tier 2/3 carriers, Calix's core market, "could be in an
upswing" amid increased clarity around U.S. government funding of
initiatives to extend broadband access to rural communities,
Stephens analyst Tim Quillin noted in a report initiating
coverage on Calix.
"We believe carriers are getting better clarity on the impact
of the transition from the Universal Service Fund to the Connect
America Fund, and are now in a better position to plan and
execute capital expenditures," Quillin said.
Calix's Burke has a similar view, saying that "we're actually
seeing improvements in the overall spending in the Tier 3 markets
in North America."
Calix should get an additional boost from more overseas
business, thanks in part to its purchase last year of Ericsson's
fiber access assets. As part of that deal, Calix also became
Ericsson's preferred global partner for broadband access under a
"In 2014, after Calix fully integrates its broad product
offering into Ericsson's sales channels, we could start to see
meaningful growth of its international business, which was 13% of
second-quarter revenue," Quillin noted.
He also points out that Calix's revenue from Tier 2/3 carriers
in Canada and the Caribbean continues to grow.
More international business should help Calix overcome
challenges in other areas, says Goldman Sachs' Simona
"Longer term, Calix will need a stronger international ramp to
offset expected Broadband Stimulus (BBS) revenue declines in
2015," Jankowski wrote in a September report downgrading Calix'
stock to sell from neutral.
The downgrade was based on Calix's rapidly rising stock price,
which touched a two-year high of 13.98 on Sept. 9 after starting
2013 out at less than 8. Shares currently trade near 12.