Harmonic is predicting growth across its cable access and video segments in 2022, but execs also warned that the pace of that growth will be curtailed by persistent supply chain constraints.

"Our current outlook for 2022 is supply-constrained and burdened with exceptionally high costs," Patrick Harshman, Harmonic's president and CEO, said Monday on the company's fourth-quarter 2021 earnings call.

Harmonic dealt with the supply chain issue during the second half of 2021, but it is seeing it strike with "full force" to start off 2022, he added.

"From a full-year perspective, it's a bigger challenge," Harshman said, noting that Harmonic is trying to mitigate it in part with price adjustments. "It means that 2022 probably is not going to be quite as strong as it otherwise would be."

Figure 1: (Source: Kristoffer Tripplaar/Alamy Stock Photo)

Supply chain constraints have led to longer lead times on components, higher freight costs and other factors that are driving overall production costs up. That's all entering the picture as Harmonic deals with faster than anticipated demand for distributed access architecture (DAA) hardware sales, which include products such as network nodes and modules.

Record backlog

As a result, Harmonic ended 2021 with record backlog and deferred revenue of $441 million, up 51.8% year-over-year. That total does not include contracts for "CableOS," Harmonic's virtualization platform for both hybrid fiber/coax (HFC) and fiber-to-the-premises (FTTP) access networks. With CableOS factored in, the backlog at the end of 2021 rises to $545 million.

Harmonic typically sees 80% to 90% of all backlog and deferred revenues get converted into revenue within a rolling, one-year period, Sanjay Kalra, Harmonic's CFO, said.

To compensate, Harmonic is trying to "stock up" above normal levels, Kalra added.

Investors took the ongoing supply chain issue as a worrying sign, sending Harmonic shares down $1.38 (12.83%) to $9.38 each in Wednesday morning trading.

But, despite those supply chain headwinds, Harmonic is confident that it can hit its multi-year top-line and long-term growth targets. It envisions a $2 billion addressable market and a path to becoming the top supplier of cable broadband technology. If Harmonic is successful in that aspect, it would unseat CommScope as the cable sector's top supplier.

As for guidance, Harmonic expects full-year 2022 revenues of $570 million to $596 million, or 15% year-on-year growth at the mid-point. The company expects its cable access segment to contribute $295 million to $307 million for full-year 2022, and its video segment to generate $275 million to $289 million.

CableOS deployments hit 4.8 million modems

Supply chain issues aside, Harmonic's CableOS business got another lift in Q4. It ended 2021 with 73 operators deploying CableOS, up 66% year-over-year. While those wins represent about 60 million locations passed, current deployments of CableOS serve about 4.8 million modems, up 82% year-over-year.

Raymond James estimates that Comcast, Harmonic's marquee customer for CableOS, accounts for about 20% of that modem count.

CableOS deployments are still below 10% of passings, but "I think there's been a modest pick-up," Harshman said, citing recent tier 1 wins such as Canada's Rogers Communications. "I think we're starting to hit a pretty good cadence with some of our larger customers."

Harshman said he's encouraged with the momentum Harmonic is seeing with its adaption of CableOS for FTTP networks. That activity has primarily centered on cable operators that have deployed fiber networks, but it also is starting to include deals with rural telcos with no cable infrastructure.

"We continue to see fiber-to-the-home as a competitive multiplier within cable accounts" that is likewise expanding Harmonic's addressable market, Harshman said.

Financial snapshot

Q4 2021 sales of $155.8 million beat the $152.7 million expected by analysts. Harmonic had two customers representing 10% or more of revenues: Comcast (26%) and Intelsat (15%).

However, gross margins are coming in lower than expected due to the aforementioned supply chain issues. Harmonic's forecast of cable access gross margins of 36% to 38% for Q1 is below Raymond James' expectation of 40.7%.

"Reaching or exceeding 60% in the Video segment looks achievable; however, we doubt Harmonic achieves 60% in Cable Access, and we would consider exceeding 50% in Cable Access as a more realistic goal," Simon Leopold, analyst with Raymond James, said in a research note.

Related posts:

— Jeff Baumgartner, Senior Editor, Light Reading