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May 4, 2021
Add Harmonic to the list of suppliers that are struggling with supply chain restraints.
Harmonic is paying "top dollar" for materials, particularly for cable access equipment used for nodes and other products that tie into the industry's emerging use of a distributed access architecture (DAA), company president and CEO Patrick Harshman explained Monday on Harmonic's Q1 2021 earnings call.
That supply chain issue is expected to be a temporary problem that could extend through 2021 and possibly spill over into the start of 2022. For now, it is driving up costs and lowering margins for certain cable access products, but not to the point yet that Harmonic has had to alter its 2021 revenue forecast of $435 million to $480 million, handily beating the $378.8 million generated in 2020. Meanwhile, gross margins for 2021 are expected to drop to a range of 50.6% to 52%, compared to 52.5% in 2020.
"We're not immune to the global supply chain constraints," Harshman said. "We're seeing shortages of several key components and related significantly higher costs, impacting most significantly our DAA and shelf hardware products."
While Harmonic could generate higher margins if it were willing to deal with lower volumes, Harshman said paying a higher price now makes strategic sense given the opportunity for Harmonic to capture market share as cable operators start to shift to distributed access architectures that pull key electronics and smarts closer to the edges of the network.
"We are leaning in for every opportunity to ... deploy DAA hardware, which means we are scouring the planet right now for the materials we need, and we're paying top dollar in many cases for them," he said. "We view putting a DAA node out there as gaining valuable real estate and not just a short-term revenue opportunity."
These supply chain constraints currently are not impacting Harmonic's ability to supply customers, but the dynamic nature of the issue could crimp the company's ability to grow and expand.
"The current situation creates a ceiling," Harshman said. "That's not to say we're not working to remove that, but it does create a little bit of ceiling on the upside ... Right now the sky is not the limit, and there is a scenario where demand may outstrip supply."
'CableOS' deployments still rising
Harmonic's DAA activity also ties into the company's ongoing deployment of CableOS, its access network virtualization platform for both distributed and centralized hybrid fiber/coax (HFC) networks. Harmonic also has adapted CableOS to run on fiber-to-the-premises (FTTP) networks.
Harmonic's CableOS deployments now serve about 3 million cable modems, up 127% year-over-year. Harmonic ended the quarter with 54 CableOS customers, up 96% year-over-year. Comcast, which represented 23% of Harmonic's Q1 2021 revenues, is the vendor's marquee CableOS customer.
During the quarter, Harmonic closed its first FTTP-focused deal for CableOS in North America, and also scored a new multimillion-dollar CableOS purchase order with a new, unnamed tier 1 international operator, along with several new deals with regional and rural US operators.
"The pace is accelerating" for CableOS, Harshman said. Those deployments appear to be speeding up after operators slowed down some next-gen projects in 2020 so they could instead focus on adding capacity to legacy equipment to help get a grip on network usage spikes being driven by the pandemic.
The recent growth in CableOS and DAA activity helped to drive Harmonic's Q1 cable access revenue to $41.3 million, up 72.1% from $24 million a year earlier.
Harmonic is also hopeful that it will have a role to play with the Rural Digital Opportunity Fund (RDOF) and other federal infrastructure stimulus initiatives underway or being proposed. Harmonic's "first port of call" in that sector is with operators that support both HFC and FTTP networks.
Harshman said Harmonic will offer a deeper look into its strategy for the federal stimulus market during an investor event that will be held later this month.
Streaming, spectrum reclamation aid video biz
Harmonic's video business saw revenues rise 29.2%, to $70.3 million, as it added seven new streaming software-as-a-service customers in the period, including several that are completely new to Harmonic.
The company also added more 5G bandwidth reclamation projects for the second half of 2021 as various satellite video operators prepare to transition off of the C-band and shift distribution to terrestrial networks or to hybrid systems that use both terrestrial and satellite delivery. SES, one of Harmonic's key partners in this area, represented 16% of Harmonic's Q1 2021 revenues.
— Jeff Baumgartner, Senior Editor, Light Reading
Senior Editor, Light Reading
Baumgartner also served as Site Editor for Light Reading Cable from 2007-2013. In between his two stints at Light Reading, he led tech coverage for Multichannel News and was a regular contributor to Broadcasting + Cable. Baumgartner was named to the 2018 class of the Cable TV Pioneers.
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