Comcast and Charter, two operators in the midst of major network upgrades, collectively represented 46% of Harmonic's Q1 2024 revenues, with Comcast representing 29% and Charter representing 17%.
Comcast and Charter Communications, operators that are pushing ahead with hybrid fiber/coax (HFC) network plans, represented about 46% of Harmonic's revenues in the first quarter of 2024.
Comcast and Charter also were the sole customers in the quarter that drove more than 10% of Harmonic's total revenues.
Comcast has long been Harmonic's marquee customer for cOS, a virtualized, cloud-based system that is underpinning the cable operator's virtual cable modem termination system (vCMTS), and a key buyer of Harmonic nodes. Comcast is using those elements to support its shift to a distributed access network (DAA) and its ongoing rollout of DOCSIS 4.0 network upgrades.
Charter's reliance on Harmonic enters the picture as the cable operator moves ahead with a multi-phased HFC upgrade that includes the deployment of a vCMTS and DAA in a portion of Charter's cable footprint. Charter reiterated last week that it expects to complete its HFC network upgrade program in 2026 at a cost of $100 per home passed.
Last year, Charter announced it would use Harmonic's platform (then branded as "CableOS") for its vCMTS rollout. It's not yet clear how Vecima, which recently introduced a vCMTS of its own and is trying to acquire Casa Systems' cable assets (including Casa's vCMTS technology), will fit into Charter's vCMTS deployment.
"Charter surprised us coming in at 17% of sales of $21M vs. 15% and $25M last quarter; we expected less in 1Q24," Raymond James analyst Simon Leopold explained in a research note. He expects Charter to ramp up its vCMTS deployments as the year goes on.
Comcast's revenue position at Harmonic in Q1 was down from 41% of revenues (about $69 million) in the prior quarter. "We expect Comcast spending improves through 2024, with ~40% of its network upgrades completed and a consistent vision," Leopold explained. He noted that the pace of Comcast's vCMTS deployments are not depending on the availability of new Full Duplex (FDX) amplifier, an element that will enable Comcast to accelerate its D4.0 network upgrades. CommScope is developing FDX amps for Comcast.
'cOS' deployments expand to 118 operators worldwide
Harmonic added five more cOS customers in the quarter, extending its total to 118. The company said cOS was serving about 28.6 million cable modems at the end of Q1, up by 2.3 million versus the prior quarter.
The latest figure represents about 16% of cable modems deployed globally, Nimrod Ben-Natan, SVP and GM of Harmonic's broadband business, said Monday on the company's earnings call. Ben-Natan has been tapped to succeed Patrick Harshman as Harmonic's CEO. Harshman plans to retire and step down from the post in June.
Harmonic's hold on the vCMTS market could loosen in the months to come amid the recent entry of Vecima and CommScope's renewed focus on the market.
Shedding more light on Harmonic's 'Beacon'
But Harmonic is also expanding the capabilities of cOS. In tandem with its Q1 results, Harmonic introduced the Beacon Intelligent Speed Maximizer, an app for cOS designed to boost the performance of HFC networks as plant network conditions fluctuate. Beacon also supports the Profile Management Application (PMA), a technique originating from CableLabs that boosts the data efficiency of DOCSIS 3.1 networks by enabling modems to take advantage of the highest available modulations, even in the presence of speed-reducing noise.
Beacon is Harmonic's third application for cOS, expanding on the vCMTS app and a virtual broadband network gateway (vBNG) for fiber-to-the-premises (FTTP) access network deployments. Harmonic noted it inked a new "seven-figure" win for its FTTP product with an unidentified Tier-1 international operator.
Harmonic did not reveal pricing for Beacon, but it's being sold as a recurring service, Ben-Natan said. Harmonic, he added, is in customer field trials and expects to "start generating small revenues" from Beacon late this year.
Dell'Oro Group VP Jeff Heynen believes Beacon has a role to play as cable operators move ahead with mid-split and high-split upgrades that beef up the amount of spectrum dedicated to the upstream.
"Given that operators are spending quite a bit of money to move to mid- and high-splits, the additional benefits of adding this function to the cOS ensures the operators are getting the most out of their investment by constantly verifying the additional upstream speeds and performance they want to deliver," Heynen said in emailed comments. "Plus, this is one of the additional, telemetry-based features operators expected when they moved to vCMTS architectures."
Competitively, he notes that operators that have yet to migrate to a vCMTS will continue to have need for external PMA engines from companies such as OpenVault and zCorum.
"In the case of an operator that is migrating to cOS, it does seem hard to imagine that the systems and service groups they do upgrade will continue to require an external PMA engine from a third-party vendor," Heynen explained. "Nevertheless, there might still be cases where the operator is happy with their PMA system and supplier and will continue to use it alongside their vCMTS."
Financial snapshot
Harmonic posted Q1 sales of $122.1 million, meeting the company's updated guidance of $121 million to $123 million. It expects Q2 sales to be in the range of $125 million to $140 million. It also forecasted full-year 2024 sales of $645 million to $695 million, down from a prior forecast of $655 million to $710 million.
Q1 broadband revenues of $78.9 million were down from $100.4 million in the year-ago period. Harmonic has previously said it expects sales to accelerate in the second half of 2024.
Total Q1 video revenues were $43.2 million, down from $57.3 million in the year-ago period. However, video software-as-a-service revenues climbed 11% to $12.9 million as customers continued to deploy and migrate to cloud-based streaming platforms. Harmonic recently took its video unit off the block after exploring a potential sale or spin-out of the division.
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