2 Communication Stocks Likely to Tide Over Industry Challenges

The Zacks Communication – Infrastructure industry appears to be hindered by high capital expenditures for infrastructure upgrades, unpredictable raw material prices due to Middle East tensions, supply-chain disruptions amid the prolonged Russia-Ukraine war and high customer inventory levels caused by tariff uncertainty. However, increasing user propensity to stay abreast of the latest digital innovations should benefit the industry in the long run. 

Nevertheless, Anterix Inc. ATEX and Bandwidth Inc. BAND are likely to gain from solid demand for scalable infrastructure for seamless connectivity with the wide proliferation of IoT, transition to fiber, cloud and next-gen technologies, and accelerated 5G rollout.

Industry Description

The Zacks Communication – Infrastructure industry players provide various infrastructure solutions for core, access and edge layers of communication networks. Leveraging proprietary modeling and simulation techniques to optimize networks, the firms offer high-speed network access solutions across Internet protocol, asynchronous transfer mode and time-division multiplexed architecture in both wireline and wireless network applications. Their product portfolio encompasses optical fiber and twisted-pair structured cable solutions, infrastructure management hardware and software, network racks and cabinets, fiber-to-home equipment like hardened connector systems, wireless network backhaul planning and optimization products, couplers and splitters, indoor, small cell and distributed wireless antenna systems and hardened optical terminating enclosures.

What’s Shaping the Future of the Communication – Infrastructure Industry?

Inflated Raw Material Prices: High raw material prices due to inflation, economic sanctions against the Putin regime and intensifying tensions in the Middle East have affected the operation schedules of various firms. Extended lead times for basic components are also likely to hurt the delivery schedule and escalate production costs. The demand-supply imbalance has crippled operations and largely affected profitability due to inflated equipment prices. The growing tension between the United States and China relating to trade restrictions imposed on the sale of communication equipment to Chinese firms has further affected margins.

Network Convergence: With operators moving toward converged or multi-use network structures, combining voice, video and data communications into a single network, the industry is increasingly developing solutions to support wireline and wireless network convergence. These investments are likely to help minimize service delivery costs to adequately support broadband competition and expand rural coverage and wireless densification in the long run. The industry players have enabled enterprises to rapidly scale communications functionalities to a vast range of applications and devices with easy-to-use software application programming interfaces. The firms support high user volumes without affecting deliverability and cost-effectively eliminate performance degradation.

Short-Term Profitability At Stake: The exponential growth of mobile broadband traffic and home Internet solutions has resulted in massive demand for advanced networking architecture, forcing service providers to spend more to upgrade infrastructure in the core fiber backhaul network. Although higher infrastructure investments will eventually help minimize service delivery costs to support broadband competition and wireless densification, short-term profitability has largely been compromised. High technological obsolescence of most products has escalated operating costs with steady investments in R&D. High customer inventory levels and a conservative approach toward placing orders for high-value items remain other headwinds for the industry. Extended lead times for basic components are expected to adversely impact the delivery schedule and escalate production costs.