CommScope Holding Company Inc (COMM) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the CommScope Q1 2017 earnings conference call. (Operator Instructions) As a reminder, this conference may be recorded.

It is now my pleasure to hand the conference over to Ms. Jennifer Crawford, Director of Investor Relations. Ma'am, you may begin.

Thank you, Brian. Good morning and thank you for joining us today to discuss CommScope's first quarter 2017 results. With me on the call are Eddie Edwards, CommScope's President and CEO; Mark Olson, CommScope's Executive Vice President and CFO; and Phil Armstrong, CommScope's Senior Vice President of Corporate Finance.

You can find the slides that accompany this review on our Investor Relations website. Now to our housekeeping items.

On Slide 2, you will find our cautionary language related to forward-looking statements. During this conference call, we will make forward-looking statements regarding our financial position, plans and outlook based on information currently available to management, management's beliefs and a number of assumptions concerning future events. Forward-looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors, which could cause the actual results to differ materially from those currently expected.

For a more detailed description of factors that could cause such a difference, please see our first quarter 10-Q filed earlier this morning and other SEC filings. In providing forward-looking statements, the company is not undertaking any duty or obligation to update these statements as a result of new information, future events or otherwise.

Please note that all dollar figures and percentages are approximations. In addition to GAAP information, we will provide certain non-GAAP measures. We believe that presenting these non-GAAP or adjusted measures provides additional meaningful information to investors. Detailed reconciliations of GAAP to adjusted measures can be found in the appendix to our slide presentation.

Slide 3 is our agenda for this morning. Eddie will provide an overview, and then Mark will review the details of our first quarter results, review our 2 segments' performance, discuss cash flow, liquidity and capital structure and then provide an outlook for the second quarter and full year 2017. Eddie will then provide a summary and we will open the line for Q&A. (Operator Instructions) I will now the call over to Eddie.

Thank you, Jennifer and good morning. On Slide 4 we see the highlights of our first quarter results. Once again, we delivered strong quarterly results and met expectations, despite encountering integration challenges which Mark will discuss in more detail. Our U.S. Mobility and FTTx businesses provided strong double-digit growth, while Europe and the Middle East exhibited signs of recovery and delivered mid-single digit sales increases. Underperformance in our indoor network solutions business more than offset the growth we saw in Mobility in FTTx. U.S. and EMEA markets. As I look over the long term I see plenty of opportunities for CommScope. We are beginning to see improvements in key international markets. Our FTTx solutions are well positioned in a growing end market. And wireless operators remain focused on preparing their networks for 5G by driving fiber deeper and augmenting their macro towers with metro cell and small cell solutions. However, we are seeing more caution from certain North American operators, which is reflected in our second quarter and full year 2017 outlook.

With that, I will turn the call over to Mark for a detailed review of financial results.

Thanks, Eddie, and good morning, all. Turning to Slide 5 you'll see the details of our first quarter results. As Eddie noted, sales were down slightly year-over-year to $1.14 billion. We continue to see strength in the U.S. Wireless and FTTx markets. Fluctuations in foreign exchange rates negatively affected revenue by approximately 1%.

Orders were $1.12 billion in the quarter, providing a book-to-bill ratio of 0.99x, which is below historical trends as we move into the typical construction season. While the book-to-bill in the Mobility Solutions segment was 1.01x, the book-to-bill on our Connectivity Solutions segment was 0.97x.

For the quarter, GAAP operating income increased significantly to $121 million while non-GAAP adjusted operating income, which excludes amortization of purchased intangibles, integration and transaction costs, restructuring costs and other special items, increased by 3% to $217 million. The increases in both GAAP and non-GAAP operating income were driven by benefits from cost-reduction initiatives and favorable geographic mix. These increases were partially offset by manufacturing inefficiencies related to ramping capacity in several North American facilities, as well as the impact of price reductions on certain products. GAAP operating income also benefited from the absence of goodwill impairment charges and lower intangible amortization in the quarter.

Our GAAP net income more than doubled to $34 million or $0.17 per diluted share. Excluding special items, non-GAAP adjusted net income, which benefited from lower cash interest expense, increased to $0.52 per diluted share, up 8% year-over-year.

I'll now discuss our first quarter performance in each of our segments starting with the Connectivity Solutions segment on Slide 6. Performance in our Connectivity Solutions segment was clearly a mixed bag. We were pleased with our outdoor network solutions sales, but disappointed with our indoor network solutions sales. Connectivity Solutions sales declined slightly year-over-year to $682 million. Strong double-digit outdoor network solutions growth in the U.S. and the EMEA region was more than offset by a decline in our indoor network solutions business. Foreign exchange rate changes negatively affected revenue by about 1% from the year-ago period. Overall, prices were also down about 1% year-over-year, which is consistent with our historical averages. Our outdoor network solutions business, which is primarily fiber-to-the-X and now about 45% of segment sales, grew double-digits from the prior year. In the U.S., we delivered solid double-digit revenue growth as service providers continue to drive fiber deeper into their networks.

Outside of the U.S., outdoor network solutions declined by mid-single digits as growth in Europe was more than offset by declines in Asia Pacific and Latin America.

Our indoor network solutions business, which primarily serves the enterprise market, is now about 55% of segments sales. The business declined in all major geographic regions except the EMEA, which posted modest growth. There were 4 main causes of our disappointing performance, all of which we are addressing. First, the completion of several large projects last year that we were not able to replace in the current quarter; second, an unfavorable mix of products which was more pronounced in the U.S.; third, a continued market shift toward hyperscale data centers where we are still building our presence; and finally, share loss resulting from brand integration and product rationalization, as we merged and clarified multiple industry brands and exited non-core products.

The enterprise market is in transition. Several key trends create challenges and opportunities. The ongoing shift toward mobility and business enterprises continues to impact the amount and type of structured copper cabling and connectivity needed in buildings. At the same time, enterprise owners need copper connectivity to power edge devices as well as support in-building WiFi and cellular coverage. While we expect in-building copper sales to decline over the longer term, we believe that no one is better positioned to take advantage of the shift toward mobility in the enterprise.

Another key trend is the pronounced shift from enterprise-owned data centers to multi-tenant and hyperscale data centers. For additional, we have been stronger in the enterprise-owned market. We are pivoting our data center solutions portfolio to better support the specific needs of the new hyperscale and cloud data centers. We expect to introduce new data center solutions during the second quarter, which we believe will accelerate our recovery.

Moving on to segment profitability. GAAP operating income in the quarter for our Connectivity Solutions segment declined 5% from the prior year to $48 million while adjusted operating income declined 14% year-over-year to $115 million. Manufacturing inefficiencies related to ramping capacity in several North American facilities, as well as the impact of lower pricing contributed to the decline in adjusted operating income. These decreases were partially offset by benefits from cost-reduction initiatives.

Let's take a look at our Mobility Solutions segment results found on Slide 7. Mobility Solutions sales were $456 million, essentially unchanged compared to results last year. We delivered an atypically strong first quarter in the U.S. This growth, along with modest mid-single digit improvement in the EMEA region, helped offset declines in the Asia-Pacific region. Price reductions and foreign exchange rate changes had a negative impact of approximately 2% and 1% respectively on Mobility Solutions sales compared to the year-ago period.

We are pleased with the profitability of our mobility segment. GAAP operating income grew substantially to $74 million while adjusted operating margin increased more than 550 basis points year-over-year to 22% sales. Adjusted operating income rose 33% to $102 million. The year-over-year increase in adjusted operating margin was primarily driven by favorable geographic mix, which was partially offset by lower prices.

Turning now to Slide 8. I'll discuss our capital structure and debt maturities. During the first quarter CommScope generated $103 million of cash from operations, vested $13 million in capital expenditures and paid $13 million in integration and transaction costs primarily related to the BNS acquisition. Adjusted free cash flow for the quarter declined 15% to $103 million. The lower level of cash generation was primarily due to the impact of paying higher variable compensation than in the prior-year period, and this was partially offset by improved timing of collections of accounts receivable due to a higher concentration of sales to domestic customers than in the prior year period.

On the right side of the slide, we show our major debt maturities. We recently replaced $750 million of secured debt with longer tenure, unsecured fixed-rate debt. We accomplished this while also improving our credit ratings at both major ratings agencies. We're pleased to have extended tender at an attractive fixed rate. And at the end of March, our weighted average effective interest rate was 5.39%.

In the first quarter, we also repurchased $65 million of our common stock or 1.6 million shares. And during April, we completed our $100 million share repurchase plan. The intent of the repurchase was to reduce dilution from our equity-based award programs.

Turning next to Slide 9, I'll discuss our 2017 second quarter guidance, and our 3 key drivers of our disappointing second quarter outlook. First, we now expect certain North American spectrum builds to be delayed and combined with other FirstNet activities, resulting in near-term deferral of certain intended shipments. In addition, contrary to some industry observers, we expect more cautious spending patterns at certain North American service providers over the near term. While we expect fiber-to-the-X spending to remain solid, we sense some hesitation by several large operators, possibly due to the dynamics of the competitive service provider environment in the U.S. And as a result, we did not see the traditional ramp in orders that we typically see late in the first quarter.

The second driver relates to the softness in our indoor solutions business. We have begun to shift our focus to solutions per hyperscale and cloud data centers. As I noted, we're introducing new data center solutions in the second quarter. In addition, we continue to push for new market opportunities along with our ongoing focus on in-building wireless.

Third, we are midway through the 3-year complex integration of the BNS business. While we have consistently delivered on cost synergies, including a year-over-year incremental $17 million in the first quarter of 2017, we experienced some integration challenges, particularly ramping capacity effectively, which impacted our ability to service our customers. And as a result, we saw our customer service and lead times suffer. We have identified our bottlenecks and have recovery plans in place. We plan to regain customer confidence with improved operational performance and customer service. Lead times have already begun to normalize, and we expect performance in the second half of this year to be stronger after capacity additions and other measures have been fully implemented. We are addressing these challenges and will continue to cultivate our long standing customer relationships.

So for the second quarter we expect revenue of $1.2 billion to $1.25 billion; GAAP earnings per diluted share of $0.28 to $0.32 based on 197 million weighted average diluted shares; and adjusted earnings per diluted share of $0.62 to $0.67. Our full year 2017 outlook also reflects our view of more cautious spending by operators in North America as well as softer indoor network solutions sales. So for the full year, we now expect revenue of $4.85 billion to $4.95 billion; GAAP earnings per diluted share of $1.41 to $1.48 based on 198 million weighted average diluted shares; adjusted earnings per diluted share of $2.70 to $2.80; and cash flow from operations of greater than $600 million.

And with that, I'll turn it back over to Eddie for some closing remarks.

Thank you, Mark. As Mark mentioned we are in the middle of a complex 3-year integration process. We're executing on the planned cost reduction targets and ramp capacity while rationalizing facilities and we organize our business units for future success. Despite the near-term challenges, we are confident in our long-term position. We are pleased with the BNS acquisition and believe it positions CommScope well for the future. We are also working hard to respond to the changes in the indoor network solutions market and to rebuild customer confidence, which I'm confident we will do.

And with that, I will turn the call back over to Brian to start the Q&A.

(Operator Instructions) And our first question will come from the line from Amir Rozwadowski with Barclays.

Two questions, if I may. The first relates to some of the tempered carrier activity levels that you guys had highlighted. As you mentioned in your prepared remarks it seems relatively contrary to what we're hearing from some of the industry folks out there, particularly some of the guys servicing the macro sites in terms of the activity levels. I was wondering if you could give a little bit of clarification in terms of what you're seeing? Is this is a pause in spending ahead of potential other deployments? Is there something that you think will be emphasized over the course of the year? Would like to hear some color. And then as it relates to the capacity additions, you had mentioned that there was an inability to meet some of the demand out there. Do you think that, that share is lost in terms of that capacity? I mean how should we think about the ramp and what expectations are baked into your guidance here?

Yes, thanks for your question, Amir, and I'll start and then Eddie can add to it. But in my comments I had pointed to sort of 3 key drivers to our call down in revenue. And the first to your point was a slower U.S. operator spending. And we sized that as about 1/2 to 2/3 of the total miss. And so when we talk about more cautious spending patterns in certain operators, within wireless we are referring to the deployment of FirstNet. And the carrier's stated intentions to deploy other spectrum brands or bands rather, but the same time that they deploy FirstNet. So in other words, touching the tower once versus a more evenly distributed deployment of non-first net spectrum. And so we're very well positioned in that market. And as it's just a question of timing it's a well known(inaudible) . And then within the fiber side of the business, we believe we're seeing the impact of some slowness due to a West Coast company announcing that they're stepping back from this market, as well as the impact of capacity adds, both from ourselves and from others that operate in this market, effectively shortening lead times and order intervals. And so again, we're very well positioned. We see no fundamental change in the long-term market demand. And keep in mind that our sales in the U.S. in this market have been growing at strong double-digits. And we expect high single to low double-digit growth in the U.S. over the balance of the year. So if you want to add to that, Eddie?

Yes, in the case of wireless operators, you asked, I think, some of this is inventory management. Still expecting continued build over the medium to long term that I think is a pause to some of them, or one of them, specifically guess your inventory and better control. I think as Mark mentioned, we do feel that in the FirstNet opportunity that we are well positioned. We -- I think we understand what is coming. It's a multi-hundred million dollar business over the next 3 to 5 years. And the firmest part in the first couple of years that will, we believe, impact their deployment early on of other antenna visits, I mean site visits because the climbing the tower is expensive and they don't want to do it but once. And I think they have been public in their statement about that. We are actively involved in the small cell rollouts that the tower companies you're talking about. Whether it be with our active hardware as well as our passive, or whether it'd be with somebody else from Radiohead. So we are primary supplier in that market and that certainly will continue. That is not the bulk of our business though and that's something that is important. We do not believe that this share loss is permanent in most cases. There will be some cases in which we choose not to try to win some of the shares that we have lost, but we think that much of it has to do with some of the customer service issues that we had. And we have to regain that trust with our customers. We think much of this is behind us relative to what we're seeing in the North American market. And so we feel comfortable that we can get back in that marketplace and regain that share. We are the leader in this indoor market, and we will use all the capabilities of a leader to regain that share.

And just to size that for you Amir is as far as the call down of the 3 drivers that we had pointed to, again 50% to 2/3 of that call down is directly related to a pause or a slowness in operator spending, all of which we view as timing. Your question with respect to some of the integration challenges or share loss, we size that as a less than 25% factor driving the call down in revenue.

Our next question will come from the line of Vijay Bhagavath with Deutsche Bank.

So my question is on the thematic build out cycle we are noting in fiber-to-the-home, fiber to cell towers, in particular small cells, data center fiber build out. So I'd like to get your view on how this fiber build outs would impact your business heading into the back half and into next year? And then would copper be a drag in terms of price deflation we're seeing in copper in particular in Europe?

In the case of copper, we have talked in the last several calls about moderation in the copper business. I think it -- that continues and probably escalates its softness. But it is still a valuable and profitable business for us and we have a sizeable share on a global basis and we will protect that where we wish to. But we have no concern about that business being viable into the future. In the case of what we see in fiber-to-the-X and hyperscale and all that, as Mark has said earlier and we said before, hyperscale is not the strong point of what we are as a network provider. That's a business that CommScope is not in. It's a business with TE was small in, but it is a growing business. And we have new products that will be coming out in the coming weeks, that we think will change our position in the market as to how we're viewed by the customer. So a lot of what we said today is concerned as to the viability of the company, the future of the business, the strength of where we play in the fiber market or what we see happening in the company overall. I think it's a pause from the standpoint of growth and it's something that we're not happy with at all and it's something that we're taking actions to make sure that we can remedy and improve upon.

Our next question will come from the line of Rod Hall with JPMorgan.

This is RK on behalf of Rod. You mentioned in your guidance that you expect improved carrier spending in the second half. I was wondering if you could give us more color on where you expect that to come from. I know that you mentioned FirstNet in the U.S. and you also talked about India in the past. Could you give us an update on that, and maybe talk about other regions that we should be thinking about as well?

Sure. With a high level we do see some healing in the international markets. We saw growth in Europe, for example, in each of our 2 segments in the first quarter. India is a market that we think has reached a point of stability. And moving forward, we could see growth in India, some in Europe. And so generally, we would see the international markets improving as we move throughout the balance of the year. But to your point in the U.S., the 2 primary drivers would be first, not just the deployment of FirstNet itself, but the other spectrum bands that it brings with it. And so we see that as much more of a second half activity than a first. And then as well with U.S. operators on the fiber side, we had talked about what we view as somewhat of a slowness or a pause. Our perspective is that some of that may be caused by competitive dynamics, but we also think that as capacity is added in this industry and lead times come in, that you're seeing inventory levels come down. And so we think that, that will be a partial correction during the second quarter, and you'll see higher growth in the fiber markets here in the second half.

Our next question will come from the line of Jess Lubert with Wells Fargo.

I also wanted to squeeze 2 in. At first, I was just hoping you could help us understand when you would expect to start to see some of the FirstNet build activity materializing? How much visibility you have there? You think that's likely to start in Q3, or it'd be more of a Q4 event? And then secondly, you alluded to some integration challenges, so I was hoping you could provide a little bit more detail regarding the snags you're experiencing there and perhaps help us understand to what extent you still expect to capture the $70 million of BNS synergies you've been targeting for this year.

Okay. In the case of FirstNet, we think that's a fourth quarter probability as to when it really gets to any level of significance. We are talking to the people today. We're visiting all of the locations around the U.S. as to where builds may happen. There's still a lot of opt-in opt-out that the states have to do. There's a lot of understanding where the towers that they will touch will be. And as Mark said earlier, they only want to do this once because it is expensive to go out there and possibly put something in that you're going to have to take back down. So we feel good about our position. And I think it's from a standpoint of expectations, it's later than some people may think. But I think it's consistent with what our customer talks to us about. But it is multiyear, it is multi-hundreds of millions of dollars potentially for us. And it's something for the long term that we think is going to be great.

And just on your question with respect to integration and synergies, you'll recall we delivered a bit over $100 million in synergies in 2016. We're committed to delivering an incremental $70 million this year. We started the year off well with $17 million realized in the first quarter, and we remain very confident we'll achieve the $70 million for the full year. The integration challenges that we saw in Q1 were really the confluence of 3 things: right, one we're adding capacity very rapidly; secondly, we have a new ERP system that we are putting in place; and third, we're doing an overall integration across our enterprise businesses and things that are outside of the factories. And so to do any one of those things well, well we're very skilled in those areas, doing 3 at the same time. We're now 18 months in and this is the first time that we have seen any meaningful impact from it. It has impacted our service levels. And we experienced about $15 million of inefficiencies in Q1, and that was really the item that impacted the profitability in our connectivity segment. But we are working very hard to correct those things and we see our lead times coming in already. And we expect to have these challenges behind us within the next quarter or so.

Should we expect the timing of FirstNet to materially change the seasonality of the second half?

Well if I'm right and it starts in Q4, Q4 is not necessarily a strong quarter. But I think there will be a start in Q4, and I think it will be an escalation into next year in 2018. So I don't think -- from what we see today, all subject to change, but from what we see today, I would not expect a material impact.

Our next question will come from the line of Shawn Harrison with Longbow Research.

A clarification and then a question too. I think, long term mark-to-model is something like a 13% SG&A rate. It's something like $200 million of R&D. If anything going on right now in terms of the integration is changing I'm thinking? And then just on the year, given the challenges you're seeing with operators on both sides on the fiber as well as the wireless, would you expect both mobility as well as connectivity to grow for the year, or would one of the segments be potentially down?

Well let me take your first question, Shawn. And I think the ranges that you gave for SG&A and R&D are very much intact today. Those are our target ranges. We are working, in fact, very quickly toward those. And so we don't encourage guidance any different. Then again, it won't happen today or tomorrow, but those are the targets to which we are guiding and that's unchanged. As far as growth in each of the 2 segments, part of that would be driven off of timing. As far as Eddie had talked a bit about FirstNet builds and the exact timing around resumption of deployment in the U.S. market. But we would call today each of our 2 segments about flattish at the midpoint of our guidance compared to last year.

So the key really ends up being the fourth quarter ramp in FirstNet in terms of whether that would be up or not for mobility?

Well we also talked about some recovery plans within our indoor network solutions business. And we -- as we had commented, we have lost some share in the copper side of that business. That's directly attributed to combining the #1 and #2 brands in the world. And we are actively engaged in recovering the portions of that share that we want back. And then we had been a little bit softer in the fiber side of our indoor network solutions business as we shift into the hyperscale architecture. It's admittedly happened a bit faster than what we had seen. You talked about new product launches here that you'll see later this quarter. We also expect that off of a somewhat slow start to the data center market in the first quarter, that activity is expected to build a bit as we move throughout the year. So all of those things we expect will also provide a bit of a lift.

And Shawn, in the indoor market we had a proliferation of brand names and we had a large amount of different cable types that both sides of the company sold over their lifetime. And the brand names we had to consolidate and do something that we felt was more understandable from a global standpoint. We're through that. From the standpoint of the cable types and connectivity types, it was virtually impossible for us over the long term to manage that large number, and so we are eliminating some. And that gave an opportunity to some of our competitors to exercise their proposition in some of these markets, mostly international. And they did take some share. And some of that we will win back and some of that we will choose not to.

Our next question will come from the line of Mark Delaney with Goldman Sachs.

Questions on the new efforts for hyperscale customers. Can you talk a little bit about how much exposure you have to -- on-premise versus multi-tenant or hyperscale data center customers within the Connectivity business? And then can you help us understand a bit more in terms of what the company is planning to introduce, and what the advantages are that CommScope can bring to hyperscale customers versus traditional suppliers?

Sure Mark. Well let me size it for you first. About 1/3 of our indoor network solutions business is the data center market. More of that has traditionally been in the copper side and focused on company-owned. And so while we do have fiber solutions that address whether it's the hyperscales or hyperscale architecture, we are working hard to bolster the product and solution offerings in that area. So we won't front-run our announcement here as to that solution set that will be introduced here soon. But we believe that it will have a -- or it will be a nice addition to the products that we can offer in this market.

And one follow-up question on -- Eddie, you mentioned in your prepared remarks you've seen some signs of life in the international markets, I think international is down in both connectivity and mobile year-over-year this past quarter. Can you offer a bit more on where you're seeing those signs of life and when that should start to impact the revenue outlook?

We're seeing some improvement in India, I think certainly in the wireless side as the operators now are reconsolidating and that market may become more stable than what we saw. And then we had some large contracts last year in Vietnam in the Philippines that are not repeating. So a lot of that business in South Asia is project-oriented and so it does fluctuate. But I guess there's some recovery in EMEA as well.

And Mark, we had pointed to growth in both in Europe in both of our segments, albeit in the aggregate, international sales were down. But on the fiber side we are seeing carriers begin to deploy in Europe fiber deeper into their networks. British Telecom, Liberty Global and Deutsche Telekom are 3 that we would point to, all of which are gaining traction this year and we expect next year to see more fulsome deployments from them.

Our next question will come from the line of Kulbinder Garcha with Crédit Suisse.

Just a couple of questions, if I can. The first one on the Fiber business and the decline in the indoor. Is it a combination of the slowdown in fiber has surprised you, and that's due to some pause in spending combined with the slightly more accelerated softness on the Copper side, is that what's going on? Just to clarify. And then the second thing is on this FirstNet buildout that may happen, do you actually have good visibility on that coming in, in Q3 and Q4 or is that yet to be determined?

I think in the case of FirstNet, there's still work to do. But what we see in talking to customer is that they, I think, the back end of the year, we think more of fourth quarter than third, but they think the back end of the year. But they have a lot of work to do. And it's not all in their control. The states have to-opt in or opt-out and then they have to make decisions there on deployment. But we're actively working with all of the different engineering territories of our customer to make sure that we're well positioned, the antenna types that they need, whether it be for FirstNet specifically or their traditional networks.

And on the Fiber side?

On the Fiber side, Kulbinder, is I had mentioned in my comments. So we have seen the market shift faster perhaps than what we had anticipated from copper into fiber, as we see more activity not only in the hyperscales themselves but in hyperscale architected data centers, whether it's in multi-tenant or other large DCs. And so we are actively engaged in bolstering our products set to address what we see is a growth market here for some time to come. This is also a project-oriented market. And within the hyperscales, there are project activities that can ebb and flow quarter-to-quarter. So year-ago comparisons aren't always easy.

So just to be clear, this young connectivity, that's at the mid part of your guidance, there's no, let's suppose, revenues are flat. Fiber growth were high single digits, copper declines to offset that. Do you still think fiber-to-build is your growth business long-term at this stage? Or should we not think about it like that anymore.

Absolutely. We view the fiber as a high-growth market for time to come, both in fiber deployments beginning in the U.S. and as I had mentioned outside the U.S. and Europe as well, and fiber being deployed into data centers. So our growth outlook on fiber as a general market is unchanged.

Our next question will come from the line of Meta Marshall with Morgan Stanley.

It's James Faucette calling in for Meta. A couple of follow-up questions. First on fiber, will you or have you already entered into a long-term arrangements like Verizon did with a competitor recently or at least that was announced recently. And then, also I guess just a follow-up question on mobility. Is there -- like you mentioned that the inventory draw down, how much inventory or how much visibility do you have into the inventory draw down? And then that how much of an issue is that really from the wired and the wireless versus the laser perhaps on longer time to get FirstNet going than had been anticipated?

We have great relationships with our customers whether it be in fiber-only or the other businesses. Many of those are multiyear opportunities for us. And the specific one you mentioned, we are a primary supplier to that customer for connectivity products. The cabling part is not the strength of what our business would be with them. So we see it as a great piece of business that our competitor got and we appreciate that. It's shows the strength of that market in which we are a major player. So I think it's good for everybody. We did participate with other people though and I think that strength continues unabated.

And James, maybe just to clarify. On your inventory question what I'd referred to in my comments was as lead times are starting to normalize within the fiber-to-the-X deployments, rather than have certain products with 16-week lead times, those are not coming in to, say, 8 weeks, and so we think you are seeing some correction in the channel. That's on the FTTx side, not the wireless side though.

And just back on the -- quick follow up on the relationships with other carriers. Do you think other carriers -- does it makes sense for them to make a commitment that's similar to what Verizon did? And it seems like what Verizon's doing is putting a lot of capacity in the ground so that they don't have to dig it up again. It seems like that, that would be a good strategy for other carriers. But have you seen them expressing similar viewer sentiment?

I think the other carriers all have their own long term plans, we are privy to most. We participate in many. And how they wish to do it is really up to them. We have little input into that. But I think that what Verizon's has done is full commitment, a billion dollars, a lot of money. And so that is a multiyear starting in '18 according to the press release. So it's not something -- it's a lot of work yet to be done to get there. So I think we appreciate being in that market and we continue to support it.

Our next question will come from the line of Steven Fox with Cross Research.

Just one question from me. I was just curious if you could clarify some of your pricing comments. It sounded like in some cases you're talking about pricing pressures that are fairly normal but then there were some extraordinary pressures. Can you just itemize the differences there for me, please?

Yes, Steven, we did not see any extraordinary in terms of pricing in the quarter. I think as we had commented with respect to our Connectivity Solutions business in particular in the absence of any year-over-year growth, the impact of pricing kind of stands out a little bit more than what it otherwise would have. But we've seen nothing extraordinary in terms of year-over-year pricing.

Our next question will come from the line of George Notter with Jefferies.

I guess I wanted to dig into FirstNet a little bit more. So I guess, first of all, a little surprised on the timing, obviously AT&T has some metrics they have to hit in terms of population coverage. I think it's 20% after the 12 months from the award. So I guess what you're implying here is a really back-end loaded build that AT&T. I'm wondering if they can get all that work done prior to that target date. And then also I had understood that a lot of the antennas weren't just specific to FirstNet, that in fact they would cover all the frequency bands in the low-band range that we have been talking about, including the band 14 for FirstNet. So I guess, I'm wondering why we're holding up the deployment of those antennas right now because of FirstNet?

Well George, I think the quote that we speak about is not ours. It's theirs as to how they're going to climb the tower, how they're going to deploy. They're not going to start until they have an idea, more than an inkling, but an idea, as to what frequencies they need within these multiband antennas that we'll be providing. So it is quite possible they can do it with 1 antenna, it's quite possible they need multiple antennas. So they don't want to spend the money and have to respend it to redeploy antennas on these towers and have the people climbing towers charging for every time they -- they have to pay the tower guys, they have to pay the tower climbers every time they go touch this. So it's something they want to make sure they do it as efficiently as possible. So it's not our decision. It's based upon what they are telling us. And we stand ready to support what their needs are. If it happens earlier, god bless them. So that'd be great.

Our next question will come from the line of Simon Leopold with Raymond James.

This is Victor Chiu in for Simon Leopold. I wanted to circle back to your comments around indoor networking. Given that you've noted more structural factors like hyperscale and cloud adoption, had there been trend and indicators you've observed for a while now? Because I guess, from an investor perspective, this has always been kind of somewhat a point of caution, but it just seemed a bit surprising that the inflection point was so sudden.

Well I think, Victor, that we have seen the gradual shift from copper to fiber, from company-owned into multi-tenants or hyperscale. We have seen that shift more acutely here over the more recent period in time. And again, as I had commented you'll have the impact of project activity that can affect any particular quarter. But we do see it moving faster today than we did previously.

Okay. And so do you anticipate that the products that you're going to roll out geared towards the hyperscale will be enough to offset this kind of structural shift?

I think that it will help in the hyperscale as it's defined singularly. I think in the multi-tenant data centers, that their design is approaching where the hyperscale may be, where large companies may go in temporarily and need product for a shorter period of time is what historically a data center's been built for. So our new applications would support both of those designs.

Our next question will come from the line of Stanley Kovler with Citigroup.

I have a question and a clarification. So my question is when you think about the enterprise business and your new products that are coming in Q2, first of all, given where you are coming from in that segment and you mentioned that from a product standpoint a bit behind, how should we think about your organic versus inorganic strategy to ramp up that business? And if you can help us conceptualize that in terms of size, should we think about that data center part of that -- of your enterprise connectivity business at about 1/3 of that overall pie?

I'm not sure if we caught the last part of your question Stanley. Could you repeat that for us?

Yes, I'm just trying to get a sense for the actual size of the data center segment within the enterprise connectivity business. Is that about 1/3 of that enterprise business?

Yes, that's right. And we size that as approximately $500 million portion of our Connectivity Solutions segment or about 1/3 of our enterprise market. And as I had mentioned historically for us we have been stronger with company-owned, which traditionally has been a little bit more copper than it has fiber. And so as the market is shifting now more quickly into fiber or hyperscale type architecture, that is the area of focus for us, certainly organically with new product offerings. We have a full M&A pipeline and opportunities within this space would also be on our list of things to think about.

And my clarification is just on the outdoor fiber side. One of your competitor's mentioned that there's actually been a lot of tight supply in that segment. And I just want to better understand your commentary about the inventory situation. Was that just confined to 1 or 2 customers or was that a broader industry statement?

Sure. I think if you separate that perhaps between cable and connectivity, there has been perhaps more of an acute shortage on the cable side. And you do see some public announcements recently with significant additional capacity being added on the cable side. On the connectivity side, which is where we play more, we have been adding capacity. And as a result of that, as well others in the space, you are now seeing lead times now coming into more normalized levels with all of the non-cable connector-type products that go into these fiber-to-the-home deployments. And that's the part we're referring to as far as lead times coming in now. And from a ordering interval standpoint, a little bit of a correction in that market.

Our last question will come from the line of Walter Piecyk with BTIG.

I just wanted to go back to this concept of a pause. AT&T has talked about FirstNet and wanting to do multiple bands for a while now. They've been pausing their network deployments for a couple of years, if you look at what the tower companies and data companies have said in anticipation of this. So when you look at the first quarter, I think in the press release, you talked about North America being double-digit, AT&T wasn't doing anything in the first quarter notable. So what's the pause from? And how is that not getting offset by some of the activity that T-Mobile has been doing on their own 700 as well as what they plan to do on the 600 megahertz spectrum within the next 6 months?

In Q1, they all have different spending patterns a little bit. In Q1 we saw a strength from one of the people we talk about. We saw softer position from the other. And in the case of FirstNet, I don't know how to say any differently than we have already multiple times. We...

I heard what you said, it's just -- that's not new information. AT&T has talked about going to the tower once for a year now. The tower companies they've been bullish about their build outs have never indicated that they expected it in Q2. So I'm not sure where the pause from AT&T is actually occurring.

Well, Walter, I think that the timing of the FirstNet award was something that to your point going back a year ago, FirstNet was only awarded last quarter. And it takes carriers time to think through how they're going to deploy those. So we aren't seeing a stoppage here, by any stretch. We do see the other carriers in the U.S. as evidenced by our first quarter continue to deploy at very nice rates. But they have now, in recent times, completed their build plans or are much more closer to doing that. The economics of touching a tower once makes imminent sense to us. And so we see it a little bit more back half loaded than what we had expected as a little bit more of a uniformed deployment of other non-FirstNet bands spectrum more evenly distributed across the year.

I understand that. I'll move on to the next question. I just don't understand how that's new information. That's being talked about for at least 6 to 9 months now by AT&T as well as the tower companies. My other question is on the fiber side. When you're talking about moving to the hyperscale, I understand that there's this acceleration. Do you have to do anything on the distribution side of things? And how do the margins look for that business? If you're going to try and address this with new products in the coming quarter, are those lower margin products? And do you have to invest in new distribution channels that you don't have as strong that you're selling to those guys versus like a corporate-owned data center?

If -- how do we sell to them? We can sell both direct and to distribution. It depends upon what they want, who the customer is. And so we have the capability for both models. So that's -- it really depends. And the relationships that we have with the people that are in that business, we sell to differently in some cases.

Thank you. Ladies and gentlemen, this concludes our question and answer session for today. And now it's my pleasure to hand the call back over to Mr. Eddie Edwards, President and CEO, for closing comments and remarks. Sir?

Thank you, Brian. Well our first quarter results met our expectations, our outlook certainly does not. Second quarter outlook is disappointing, however we still firmly believe that significant opportunity lies ahead and that CommScope has strong earnings power and cash flow characteristics. As a market leader, we intend to adjust our business as needed to adapt to our customer spending patterns as well as technology migrations. We will also focus our -- on driving new solutions and adjusting our market strategies to reinvigorate our inside network solutions business. I thank you for taking your time in joining us with our earnings call today and we appreciate your continued interest in CommScope. Thank you very much.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.