In analyst day presentations brimming with baseball metaphors, DZS execs told investors and media that the company is geared up to play "long ball" as service providers pivot toward a converged future that will span both wired and wireless networks and be tied together with software and virtualization.
Charlie Vogt, the CEO who took the reins of the company in August 2020 and is a former Division I collegiate baseball player himself, outlined a vision for the company that intends to maintain its traditional focus on tier 2/3 players while also expanding further into the tier 1 world.
"We want our shareholders and we want our investors thinking not so much about the next two or three quarters. We want our investors and shareholders to be thinking about DZS over the next two, three, four years," Vogt said.
He said DZS and the telecom industry are facing a new set of "mega trends" that are poised to drive the business forward, including the move to 5G, new broadband competition fueled by new fixed wireless services, an acceleration of fiber upgrade cycles for wired networks, and an aggressive move toward software-driven and virtualized networks. On top of that, there's been a shift toward "commonality" for the infrastructure underpinning both residential and enterprise networks.
And those shifts have also crossed into the geopolitical landscape. "You have this new wildcard that really didn't exist until the last several years … [with] the security bans and the security concerns where a lot of countries and a lot of service providers are moving away from the Chinese suppliers and giving companies like DZS an opportunity to participate in networks that otherwise wasn't there," Vogt said.
For DZS, the path ahead is focused on a set of pillars that include wireless, broadband access, connected premises equipment and orchestration and analytics. The latter piece is a relatively new one for DZS, spawned by the company's acquisition of RIFT last year.
Wireless is becoming a bigger revenue component for DZS, which supplies mobile transport products to companies such as Rakuten, LG U+ and KT Broadband. For Q1 2021, mobile transport represented 28% of revenues, up from just 6% in the year-ago period. However, fixed broadband remains the core of DZS's business, representing 72% of Q1 2021 revenues, compared to 94% in the year-ago quarter.
Primed for RDOF
DZS's discussion also touched on opportunities involving federal stimulus projects, including the Rural Digital Opportunity Fund (RDOF). "Today's RDOF is yesterday's Connected America [Fund] and, prior to that, it was the Universal Service Fund," Vogt said.
DZS estimates that about 30% of the phase I RDOF recipients are not traditional rural ILECs, but are rather various cable operators, fiber overbuilders, municipalities and utility companies. DZS is attempting to lock into the opportunities across that board. On the cable side, it recently struck a partnership with the National Cable Television Cooperative (NCTC), a group that provides tech and services to hundreds of independent cable operators and telcos.
"We are certainly seeing a lot of our US-based customers accelerate their spending, and much of that is driven by RDOF," Vogt said.
Consolidated Communications, one of DZS's customers, is part of that mix. In a pre-recorded piece included in today's event, Tom White, Consolidated's CTO, noted that the majority of his company's RDOF activity will be focused on fiber using XGS-PON technology capable of delivering up to 2 Gbit/s, with a path to 10-Gig "as necessary."
DZS sees the move to 10-Gig and beyond as its window of opportunity to capture share and expand further into the tier 1 arena.
"For us, I think we're at an inflection point from a technology perspective" as service providers start to move from sub 1-Gig to 10-Gig-plus," Vogt said. "I think that's our opportunity to participate in some of the larger-scale tier 1 networks that we previously weren't able to participate in."
DZS isn't ready to tip its hand on specific plans for future 25-Gig technology, but Vogt called it a "pretty natural step for us."
Eye on the supply chain
DZS hasn't been immune to supply chain issues and the global chip shortage, but believes it's in a "pretty good place," Vogt said. DZS, he explained, booked much of its fundamental raw materials for Q3 and Q4 of 2021 last August and September.
"This has been a very fluid market," he said. "From a supply chain perspective, we saw 26 weeks turn into 52 weeks in a matter of weeks."
— Jeff Baumgartner, Senior Editor, Light Reading