Harmonic hit by Q2 miss, lower guidance in face of sales delays

Harmonic shares dropped almost 12% Monday in after-hours trading following a Q2 miss and Q3 guidance below Wall Street expectations, due largely to sales delays across its broadband and video business segments.

On the broadband end of the business, Harmonic is heavily weighted toward Comcast, which generated 47% of Harmonic's total Q2 2023 revenues. Among recent big wins, Harmonic has been tapped by Charter Communications for the operator's rollout of a virtual cable modem termination system (vCMTS) linked to Charter's network upgrade initiative.

"[I]t appears Harmonic is not only facing an air pocket ahead of the ramp from Charter and its newer customers, but top customer Comcast will be slower in 3Q23 ahead of its DOCSIS 4.0 rollout," Raymond James analyst Simon Leopold explained in a research note.

Leopold noted that delays concerning Comcast might be linked to the operator's transition to FDX (Full Duplex) amplifiers for its DOCSIS 4.0 network upgrade, but noted that these scenarios do not alter his view on Harmonic's long-term trajectory. "Charter is modest in 2023 and will be a primary driver of 2024 growth," Leopold added.

Harmonic was not as customer-specific on Monday's earnings call regarding the short-term headwinds it's facing. But execs acknowledged that the softness it's seeing for both broadband and video is not coming exclusively from one customer.

"We did expect Q2 growth to be higher, and during the quarter we ran into unexpected reductions in hardware deliveries, reductions we now expect persist through the third quarter," Harmonic CEO Patrick Harshman said on Monday's earnings call. "It does reflect though some absorption of inventory, some contraction. And secondarily, I think some other market factors; transition to FDX being one of them."

But Harshman, who expects a rebound in the fourth quarter of the year, stressed that Harmonic is not seeing any loss in business or change to its mid-to-long-term growth opportunity. Harshman noted that Harmonic did secure initial multi-million-dollar deals from two tier 1 accounts – including one in North America – that have not begun deployment and aren't yet contributing revenues.

CableOS nears 100 customer mark

During the quarter, Harmonic made some progress with CableOS, a vCMTS platform that supports both hybrid fiber/coax (HFC) and fiber-to-the-premises (FTTP) networks. Harmonic ended Q2 with 98 CableOS customers, up from 94 at the end of the prior quarter. Its CableOS deployments now serve about 21 million cable modems, up from 18.4 million at the end of Q1 2023. Harmonic estimates that its current CableOS wins represent about 12% of the addressable global market.

On the financial end, Harmonic posted Q2 sales of $156 million, below guidance in the range of $161 million to $171 million and the $167.5 million expected by analysts. Harmonic expects Q3 revenues of $125 million to $140 million, below Wall Street estimates of $189.4 million.

"While it's premature to give 2024 guidance, the outlook for the business is really unchanged," Harshman said.

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— Jeff Baumgartner, Senior Editor, Light Reading