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Wall Street’s Day-To-Day Impatience on Fiber

The United States is in a good position to improve its fiber standing in the world, according to one Wall Street analyst, but the stock market needs to stop overreacting to every perceived hiccup. Federal funding is slow and steady; at the same time, suppliers and service providers are adjusting strategies from quarter to quarter as needed.

“With a number of these new initiatives, namely ARPA and the IIJA in 2021, we now have substantial funding to close [the U.S.] digital divide for the 20% of homes that lack broadband,” said Ryan Koontz, Managing Director, Needham & Co. “Relative to traditional high tech industry speeds, I can tell you that patience is generally thin in the stock market. It takes a long-term perspective to really keep your hat on in the right direction.”

The U.S. is currently ranked 31st in the world for fiber access today, a gap that Koontz said is “somewhat embarrassing,” but should close over the next five to ten years with the consistency in federal policy and funding. The new programs and the operational benefits of fiber are bringing cable companies into the fold, as are new entrants such as municipalities, power companies, and overbuilders.

Investors were very excited about fiber buildouts in 2022 but became less so at the beginning of 2023 as inventories became out of balance due to over purchasing over supply chain fears. Service providers became overstocked as they accumulated materials while encountering higher costs due to inflation on parts and services in general, along with some inefficiencies by attempting to scale.

“We’re probably not going to get to a full normalization of demand until 2024,” said Koontz. “A lot of inventories were held at the customer. For most of these suppliers, they don’t have the visibility of what’s at the customer until it’s a problem. We still remain very bullish on a multi-year view of the sector, despite some of the pullbacks in the stocks.”

One area that has substantially underperformed is the 5G market. “There are no new 5G reviews at all today. It’s an absolute zero, it’s straight across from 4G,” Koontz stated. “Operators are reassessing their points, because there was supposed to be a new set of revenues coming in that were enterprise-driven…. It’s not coming anytime soon.”

To learn more about Wall Street’s view of fiber supply, demand, and its impatience relative to federal investments, tune into the latest Fiber for Breakfast podcast.