Clearfield: Newly wired for profit

The wind-swept snow that blanketed the entrance to the red brick building that is home to the new Clearfield Inc. could just as easily stand for the brutal business storms that recently prompted the former APA Enterprises Inc. to ditch its name and some of its long-standing lines of business.

Gone are the APA name and a 30-year legacy as a money-losing, high-tech maker of precision optical lenses and ultraviolet-light detectors. Instead, the renamed firm is celebrating its first quarter of profitability in a long, long time.

APA founder Anil Jain resigned as CEO last summer. The company's board shed the optical and ultraviolet business and set a new course as an independent copper and fiber-optic equipment firm that caters to rural phone companies.

Inside the Plymouth factory, 107 workers snip, grind, polish and fit the ends of glass fiber-optics for customers such as Paul Bunyan Telephone Co., 3 Rivers Communication, Heart of Iowa Communications, Pioneer Telephone Cooperative and Rural Telephone.

"This is the new world. It's fun to be able to take it to the next step," said the company's new president and CEO, Cheri Beranek Podzimek. Clearfield's intent is to become a bigger player in the rural $3 billion "fiber-to-the-home" market.

Most phone companies have spent the last 10 years updating miles of cable from copper to significantly faster fiber optics. They brought the high-speed cable as far as neighborhood junction boxes but failed to go all the way into the home because of cost.

Now that costs have dropped, that "last mile" of "fiber-to-the-home" is the goal for Verizon, Sprint, Qwest and the nation's 1,100 independent phone companies. Consumers are demanding faster speeds for their Internet, HDTVs, video and phones.

Two weeks ago, the company changed its fiscal year and posted a $119,000 profit for the fourth quarter, which now ends Sept. 30 (in conjunction with the construction season). A year earlier, APA lost $400,000 in the same period. And it lost $1.29 million between March and September.

But those losses flow from the old APA, Podzimek insisted. Without APA, Clearfield's earnings rose and revenue jumped 9.5 percent to $5.39 million for the quarter.

Investors are cautious but pleased. They bid up the stock from 79 cents a share to $2 for a time, though it has since settled near 82 cents on recession concerns.

"We are happy with that 10 percent" revenue growth, said Podzimek, who has led various parts of the cable equipment firm since APA bought it as a division in 2003. Sales have since climbed from $11 million to $20 million. Rural phone companies expect Clearfield's sales to grow even more.

"For [Clearfield], the market is probably going to grow exponentially," said Brian Bissonette, marketing supervisor of the Paul Bunyan Telephone Co-op. "We were one of the first to [upgrade] a city the size of Grand Rapids [with fiber]. But more and more independents like us and even the traditional out-of-the box [firms] like Qwest and cable companies and the big boys like Verizon are deploying a lot more fiber to the home. "

Industry experts such as research firm RenderVanderslice & Associates and the Fiber-to-the-Home Council recently reported that the fiber-to-the-home market nearly doubled last year from 1.2 percent of U.S. homes to 2.2 percent. More than 2 million U.S. homes have that next-generation broadband cable.

Rural phone companies are seeing greater demand.

With fiber, "you get to have HD and multiple HD streams in people's homes" because they have more capacity than coaxial cable or copper wire, Bissonette said. Copper, which phone companies have traditionally used for the last mile into the home, "limits what Internet speed we can deliver. So anybody upgrading their network is seriously looking at going all fiber."

Clearfield recently won its first international accounts after signing with distributors in Canada and Europe. The new markets are expected to help fill the revenue gaps that have developed for the company because of slowing home construction.

At the same time, Clearfield slashed its production costs by 20 percent by adopting new fiber-optic harnessing technology and by manufacturing more products overseas.

"I think there is an expectation that we will really take the company and eliminate all the losing components and get rid of all the [APA] inventory that needed to be written off and that we will be profitable," he said.

Podzimek and Chairman Ron Roth are "bottom-liners, and they know how to get there. And now they have an engine that seems capable of taking them into profitability long-term," Zuckerman said.

Housing is a negative

"The one thing that may be their problem is that housing is going to be down. So new cable to home is obviously going to take a hit."

Roth, former CEO of Waste Systems Corp., bought 75,000 shares in December on the open market after buying 68,000 in August.

"We only go after the little guys. And they are still a huge chunk for us to go after," she said.

The U.S. market for rural fiber-optic connectors is estimated to be worth $3 billion, with 1,100 small phone companies that need the connectors, splitters, wire housing cabinets and other equipment that Clearfield and competitors provide.

To broaden its appeal, Clearfield introduced its new easy snap-in wire harnessing cassette technology called Clearview in October and plans to offer phone companies a better "second generation" version this week, Podzimek said. The technology cut Clearfield's wire packaging costs by 20 to 25 percent and has been well-received.

"There are huge pricing pressures in our industry. If I only compete on price, I will lose," Podzimek said. "I have to count on our engineering strengths."