Shares in BigBand Networks Inc. (Nasdaq: BBND) slid as much as 20 percent in after-hours trading Tuesday following a warning that the digital video gear specialist was in store for a third-quarter loss resulting from sluggish bookings at Verizon Communications Inc. (NYSE: VZ) and with cable MSO customers.

BigBand's second-quarter revenues were down about 9 percent year-over-year, missing analyst forecasts. However, net income, on a non-GAAP basis, was up compared to the year-ago period and handily beat Wall Street's expectations. (See BigBand Posts Q2.)

Table 1: BigBand Q2

Table 2: BigBand vs. Wall Street

But investors fretted over BigBand's prospects for the second half of the year, which is expected to be soft due to lower capital spending among the vendor's cable and telco customers. BigBand said it expects third-quarter revenues of $20 million and a non-GAAP net loss per share in the range of 13 to 15 cents. Analysts were expecting third-quarter sales of $45.8 million and a profit of 6 cents per share. "The low forecast highlights BigBand’s small company vulnerability, or the potential financial swing that occurs when a small vendor sells to a few very large customers," noted Morgan Keegan & Company Inc. analyst Simon Leopold in a research note issued this morning. Verizon was BigBand's largest customer in the second quarter, representing more than 30 percent of revenues. Charter Communications Inc. and Time Warner Cable Inc. (NYSE: TWC) were BigBand's other 10 percent or greater customers in the period. Verizon's rate of orders slowed in the second quarter, but BigBand expects the telco to remain a 10 percent customer. On yesterday afternoon's earnings call, BigBand CEO and president Amir Bassan-Eskenazi said the vendor saw some of its cable customers "taking a pause" in the quarter, blaming it on excess capacity build-outs linked to the digital conversion in the previous quarter and "increased scrutiny on capital spending." He said BigBand won some sizeable, new switched digital video (SDV) business in the second quarter, but purchase orders slipped into the third quarter. BigBand ended the quarter with an SDV footprint of greater than 25 million households, hopeful that the figure will rise after the Federal Communications Commission (FCC) vacated an earlier ruling that put a temporary chill on the category. (See FCC Reverses SDV Ruling.) Although lower bookings in the second quarter resulted in lower deferred revenues carrying forward into the third, BigBand is optimistic it will see a "substantial increase" in deferred product revenues by the end of the third quarter. "We expect the weaker outlook to be temporary in nature," Bassan-Eskenazi said. BigBand isn't yet providing any fourth-quarter guidance but expects earnings "to be materially better than our Q3 operating results," said CFO Moe Castonguay. In the meantime, BigBand intends to continue investing in new products and software that it hopes will drive future growth. Of recent note, the vendor introduced "vIP PASS," a cable IPTV platform, and the Converged Video Exchange (CVEx), a "video control plane" management system that extends the capabilities of its SDV platform. (See BigBand Pushes IP Video Convergence and BigBand Lays Cable IPTV Groundwork.) Bassan-Eskenazi said undisclosed "larger" MSOs in North America, Europe, and Asia are giving vIP PASS a test drive now, but he doesn't expect that activity to translate to revenues until sometime next year. For now, LG Powercom Co. Ltd. of South Korea remains the only announced customer of BigBand's new cable IPTV platform. (See Koreans Take Cable IPTV for a Spin .) — Jeff Baumgartner, Site Editor, Cable Digital News