Harmonic poised to pass Cisco in CMTS market share, CEO says

News Analysis Jeff Baumgartner, Senior Editor, Light Reading 8/3/2021

After tacking on more deployments of "CableOS," its virtualization platform for cable and fiber networks, in the second quarter of 2021 – along with growth that still lies ahead – Harmonic is now in position to take over second place of the cable modem termination system (CMTS) market. Or so says Harmonic CEO Patrick Harshman, who made the declaration Monday (August 2) during Harmonic's earnings call.

If that scenario plays out, Harmonic would fly past Cisco Systems, which has been backing away from the cable access market in recent months, and likely extend its lead on Casa Systems.

That would leave Harmonic trailing only CommScope, which held about 40% of the cable concentrator market (which includes DOCSIS infrastructure elements, virtual CCAP licensing and nodes and modules for emerging distributed access architectures) in terms of revenues at the end of Q1 2021, according to Dell'Oro Group.

Harmonic said it finished Q2 with CableOS deployments with 62 customers, up 114% versus the year-ago quarter. Put together, those deployments now serve about 3.3 million cable modems, up 94% year-over-year. Harmonic doesn't break down those deployments by operator, but the largest is Comcast, which contributed 31% of Harmonic's total revenue in Q2 2021.

Harshman said Harmonic added two more tier 1 cable operators to its CableOS list in the period, extending its tier 1 total to eight worldwide.

In addition to Comcast, Harmonic's marquee CableOS customer, other announced deals in that tier 1 group include Vodafone in Europe, and Claro Perú (which is connected to América Móvil) and Millicom in Latin America.

Flirting with fiber

Harmonic is also attempting to expand the addressable market for CableOS by adapting the platform to fiber-to-the-premises (FTTP) networks.

Harmonic isn't targeting the likes of Verizon or AT&T with that approach, but Harshman does view it as a value creator among operators that are running "converged" FTTP/DOCSIS platforms and are increasingly looking to fiber to help them stay competitive as networks are updated to handle symmetrical multi-gigabit services up to 10-Gig.

While Comcast is among the kind of operator that would fit that scenario, a recent example of an operator that has such a strategy underway is Virgin Media O2. The UK operator last week kicked off a multi-year FTTP upgrade project that will likely see DOCSIS and FTTP coexist for years to come.

While overall customer activity has substantially recovered since the height of the pandemic, Harmonic is still navigating through a global supply chain situation that has created both cost challenges and production timing challenges, CFO Sanjay Kalra noted.

Financial snapshot

Total Q2 revenues rose 53.2%, to $113.4 million

Aided by the aforementioned momentum with CableOS, Harmonic's cable access segment pulled in revenues of $50.1 million, up 89% year-over-year.

Revenues at the company's video segment climbed 34%, to $63.3 million. Within that category, revenues for the software-as-a-service piece of the business rose 68%. Harmonic ended the quarter with 102 SaaS customers, up 55% year-over-year.

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Harmonic ended the quarter with record backlog and deferred revenue of $347.2 million.

Looking ahead, Harmonic expects cable segment revenues in the range of $50 million-$55 million in Q3 2021. The company also raised cable segment guidance for the full year – from a range of $175 million-$200 million, to a range of $192 million-$207 million.

Harmonic also raised video business revenue guidance for full 2021 from a range of $260 million to $280 million, to a range of $278 million-$288 million.

Q2 results paired with updated guidance gave Harmonic shares a lift – they were up 56 cents (6.48%) to $9.20 each in after-hours trading Monday.

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— Jeff Baumgartner, Senior Editor, Light Reading