Harmonic continues to sit squarely in the catbird seat among vendors when it comes to virtualizing the cable access network, announcing today it struck two more deals with international tier 1 cable operators in Q4 2019.
Harmonic still won't identify those new international wins by name yet, but its overall deployment tally for its CableOS platform now includes five tier 1s, led by its multi-year, $175 million enterprise software license agreement with Comcast. Harmonic says it now has commercial deployments of CableOS underway with 23 cable operators worldwide.
Speaking on Monday's earnings call, Harmonic President and CEO Patrick Harshman said the cable operators that have begun to deploy CableOS on parts of their respective networks serve about 45 million modems, with Comcast representing about half of that total.
However, the number of modems actively being served by CableOS, at more than 1 million, is just a drop in the bucket at this stage.
Harshman said the growth potential for CableOS is two-fold -- expanding deployment to the full footprints of the existing customers and working on new design wins with MSOs around the globe.
"We like our chances of converting the rest of the operators to, over time, being 100% or nearly 100% based on CableOS," Harshman said.
Though Harmonic hasn't announced all of its tier 1 customers for CableOS, Vodafone, at 13%, was one of three operators representing 10% or greater of Harmonic's Q4 revenues. The other two were Comcast (20%) and Charter Communications (14%).
As Light Reading reported last year, Comcast is exploring a strategy to syndicate the virtual cable modem termination system it has built in partnership with Harmonic to other cable operators in a similar way that it licenses its cloud-based X1 video platform today to Cox Communications and three Canadian cable operators – Rogers Communications, Shaw Communications and Videotron.
Harshman declined to speculate whether any of those X1 syndication partners might follow a similar path with a virtual CMTS, but allowed there's "an opportunity to work with them in more than one way…One way or another, our aspiration is to see CableOS become part of the story there."
Harmonic has also adapted CableOS to serve fiber-to-the-premises networks, initially targeting that product to MSOs that are deploying PON networks in a targeted fashion. Harshman said Harmonic has yet to secure any design wins for the PON-facing version of CableOS, but he said the product is in some lab and field trials. An obvious candidate for that product is Comcast, which is using FTTP for Gigabit Pro, a residential offering that delivers symmetrical speeds of 2Gbit/s.
Video business transitioning to SaaS model
For Harmonic's video segment, the company continued to expand its software-as-a-service offering, adding 12 new SaaS streaming customers in Q4 and upping that total to 48.
However, total revenues for Harmonic's video business declined 11.6% in Q4 on a year-over-year basis in part because the new SaaS products are focused on the company's software and not video servers and other hardware associated with its on-prem video streaming platform. On the flip side, Harmonic's video segment notched a record gross margin of 60% and an operating margin of 14%.
As Harmonic turns over its video hardware/appliance business to companies like HP and Dell under the SaaS model, "it creates a clear headwind on the top line," Harshman allowed. But he said Harmonic isn't overly concerned about that because those hardware sales carry "virtually no margin," likening it to "losing empty calories" from a top line perspective.
Harmonic posted Q4 revenues of $122.2 million, up 7.5% versus the year-ago quarter. Cable segment revenues climbed 78.3% YoY, to $43 million, while video segment revenues dipped 11.6%, to $79.2 million.
Looking ahead, the company is expecting Q1 2020 revenue of $80 million to $90 million, with $20 million to $25 million for its cable access segment. Harmonic shares were down 7.68%, to $6.79 each, in after-hours trading Monday based on the company's expected slow start to 2020.
Update: In a note issued Monday night, Raymond James analyst Simon Leopold maintained his "Outperform" rating on the stock, but lowered his target price to $7.50, from $9.
While he's not surprised at the seasonal challenges faced by Harmonic in Q1 2020, the company's 2020 full-year sales guidance of $390 million to $430 million is below Wall Street consensus of $439 million as well as Leopold's prior expectation of $458 million.
"We remain optimistic regarding the trajectory and prospects, but have to adjust to a more gradual 2020 ramp than we previously modeled," he wrote.
- Harmonic Cable Access Revenues Climb 78% in Q4 2019
- Cable access hardware revenues to dip as virtualization takes hold – analyst
- Comcast Sizing Up Plan to Syndicate a Virtual CMTS – Sources
- Harmonic Sheds More Light on Big 'CableOS' Deal With Comcast
- Comcast Commits Millions to Harmonic's 'CableOS' Platform
- Harmonic's 'CableOS' Adds More Fiber to Its Diet
— Jeff Baumgartner, Senior Editor, Light Reading