Clearfield’s CEO says the provider industry’s inventory glut is clearing

Clearfield likes its chances in the broadband market.

During the recent Needham Growth Conference, Cheri Beranek, Clearfield’s president and CEO, said the broadband equipment industry has reached a good “inflection point.”

With a focus on Tier 3 telcos, community providers, and Tier 2 telcos like Frontier, Clearfield is seeing the inventory glut continue to correct itself.

“What we’re seeing across the board is the inventory positions during and after the pandemic are being absorbed,” Beranek said. “We’re going to be able to see the work done in the last two years.”

The company reported consolidated net sales of $46.8 million for its fiscal fourth quarter, a 6% decrease year over year. It had consolidated net sales of $166.7 million for the entire fiscal year, a 38% decrease from 2023.

Except for the regional cable MSOs, Clearfield is getting closer to a one-to-one build/buy environment.

“Our lead times are three to four weeks, which means the service provider does not have to give us huge visibility, but it also allows talking to our customers about their real needs and how much they will need from us,” Beranek said.

Pivoting towards connecting homes

Clearfield has traditionally specialized in helping last-mile providers pass fiber to homes and businesses through its cabinet line and terminals.

Now, the company is focused on connecting homes with fiber facilities. It sees a revenue upside when enabling providers to connect homes with fiber-based services.

“Our revenue per home passed is about $50,” Beranek said. “When we connect the home, and about 40 percent of homes passed to take the fiber service, our revenue opportunity goes up to about $250.”

She added that Clearfield “was first known as a cabinet company and now is working to be a platform supplier, so if they pass the home with our cabinets, they connect the home with our drop cables, deploy reels, and home deployment kits.”

This benefits service providers as they grapple with how to rein in labor costs for network deployments.

“Service providers are taking the same labor savings that we had when we passed the home into that connected platform because that’s where most of the labor is found,” Beranek said. “We’re working toward a 50/50 split between homes passed and homes connected.”

Customized rural solutions

When Clearfield launched in 2008, the dominant fiber broadband players were AT&T and Verizon, delivering services to mainly Tier 1 markets.

These providers, including Corning and CommScope, leveraged legacy suppliers' network terminal and connectivity equipment.

While Corning and CommScope would also extend their products to smaller fiber-centric operators, their solutions duplicated those delivered to Tier 1 operators.

“Companies like Corning and CommScope would provide the product to a Tier 3 telco and would say it works for Verizon, so it should work for you too,” Beranek said. “Building a company in Minnesota and providing products to companies like Paul Bunyan Telephone, they did not need the same product used in Manhattan, NY.”

Focusing on offering products to scale and align capital equipment, we built our products on the premise that rural providers must be treated differently.

“We started the company to scale and provide modular solutions that could be identified for that environment and have a different kind of sales force, which would use distribution to fulfill,” Beranek said. “We would also have a sales organization that lived in the communities where fiber is being deployed.”

Addressing ACAM, BEAD opportunities

In the U.S. market, 29 million homes in rural Tier 3 environments don’t have a fiber-based broadband connection.

About 11 million homes will be served by providers accessing the FCC Alternative Connect America Cost Model (ACAM) program or Broadband Equity, Access, and Deployment (BEAD) funding. Nearly 18 million homes served by fiber will not require government assistance.

“If you take 29 million homes times $50 for homes passed and $250 for homes connected, I have a $7 billion total market based upon the solutions where we lead,” Beranek said.

ACAM is about $18 billion targeted at 250 providers nationwide, which previously used government funding for 25/3 Mbps.

However, the rural broadband market needed to be somewhere else. It needed to reach 100 Mbps capabilities as a stepping stone to gigabit speeds.

“To get to the true gigabit needs, we need to be a fiber network upgrade, so there’s $18 billion dedicated to the ACAM program that will start in the build season 2025,” Beranek said. “We’re seeing quoting for new projects starting this year, and it’s a three-year build.”

She added that “it’s an additional opportunity we did not have in the past, but it’s also a new market opportunity.” This is one reason why we're seeing inventory reserves go away.

Like other telecom infrastructure providers, Clearfield is keen to participate in the $42.5 billion BEAD program.

After establishing maps of the entire country and identifying underserved and unserved addresses, service providers had the opportunity to challenge them.

Beranek said the key is that the money from BEAD is allocated from state broadband offices. “What I like about the BEAD program is it is state-run, so all of the money is allocated by the state and being awarded to the state for distribution,” she said. “If you are a local provider like us, we operate in those communities, and you want those communities to be able to make those decisions.”

However, Beranek added that given the layers of management of the program, it has taken longer than anticipated. “The more people involved means it takes longer,” she said. “We’re in a position now that it has been three years, and the criticism during the election was that we have not seen a single home being connected under the initiative, but we’re finally there.”

To date, 57 states and territories have an established program. Three states—Delaware, Louisiana, and Nevada—have awarded their money.

Fiber continues to be a priority. In Louisiana, 95 percent of the funds went to fiber-based projects. Likewise, 80 percent of the BEAD funding in Nevada went to fiber-based broadband.

“One of the recent exciting steps is the NTIA approved the Louisiana initiative, so now we can start distributing money,” Beranek said. “Hopefully, we don’t get interference from the new administration that slows this momentum down.”

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