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Cable/Video

Harmonic: Waiting on SDV

Harmonic Inc. (Nasdaq: HLIT) said growth for its "universal" edge QAM gear stayed strong in the first quarter, but acknowledged that installments in support of switched digital video (SDV) deployments are happening at a slower pace. (See Harmonic Posts Q1.)

Comcast Corp. (Nasdaq: CMCSA, CMCSK) has selected edge QAMs from Harmonic and Arris Group Inc. (Nasdaq: ARRS) for its rollouts of SDV, a bandwidth-saving technique that delivers channels in more of an on-demand fashion than traditional cable TV. (See Comcast Taps Arris for Edge QAM Initiative .)

Comcast has expressed plans to deploy SDV in as much as 15 percent of its service area by year-end, but it has not announced any field activity beyond the initial tech trials in parts of Denver and New Jersey. (See Comcast Reveals SDV Test Beds.) Comcast has been more aggressive with Docsis 3.0, as it plans to wire as much as 20 percent of its footprint for the speedier platform by year-end, and across the board by mid-2010. (See Comcast Spreads the Love and Comcast Enters the Wideband Era .)

During Wednesday afternoon's earnings call, Harmonic president and CEO Patrick Harshman declined to address the SDV situation at Comcast specifically, but said switched digital video-related equipment growth, on a more general basis, isn't moving as rapidly as predicted.

"There was some contribution from SDV," he said of the first quarter. "I would say it's somewhere above modest, but certainly not [a] significant contribution. It's, frankly, a little less than we would've anticipated six months ago."

But the pace of cable SDV deployments may not matter in comparison to the relative surge of edge QAM installs. "Universal" edge QAMs, which are part of Harmonic's tech arsenal, are designed to support multiple types of digital cable applications, including SDV, digital broadcast video, video on demand (VOD), and Docsis IP traffic (using the modular-cable modem termination architecture).

"Our edge QAMs are being used for a variety of applications," Harmonic chief financial officer Robin Dickson said.

'Early innings' for MPEG-4
Harmonic also talked up its MPEG-4 strategy, but acknowledged that big migrations to the more efficient codec are still out on the horizon.

"The overall market is still in the early innings of a major move from MPEG-2 to MPEG-4 and from standard definition to high definition," Harshman said. "By continually improving MPEG-2 and MPEG-4, technologies for high-quality HD delivery will remain important growth drivers for us in the cable market over the next several years."

But there's not much MPEG-4 business yet to speak of, as most digital cable boxes in the field are based on MPEG-2. However, some new models will support both codecs, possibly opening the door to new HD tiers that rely on the bandwidth-saving MPEG-4 platform.

Harshman said some "select cable operators" outside the U.S. are starting to adopt Harmonic's MPEG-4 encoding technology, while MPEG-4 compression will serve as a "technology cornerstone" for satellite companies. On the telco front, PCCW Ltd. (NYSE: PCW; Hong Kong: 0008) of Hong Kong is using Harmonic MPEG-4 gear to power a new HD service.

Financial update
For the first quarter, Harmonic beat estimates by posting net sales of $87.3 million, up 24 percent from a year-ago. GAAP net income came in at $13.4 million (14 cents per diluted share), versus just $1.1 million (1 cent per diluted share).

Looking ahead, Harmonic expects second and third quarter sales to be in the range of $170 million to $180 million.

Harmonic's largest customers in the quarter were Dish Network LLC (Nasdaq: DISH) and Comcast, representing a respective 21 percent and 17 percent of Harmonic's revenue. Cable remained Harmonic's primary breadwinner, with 59 percent of Harmonic's total revenue, followed by 25 percent from satellite. Telcos and "other" customers represented 16 percent.

— Jeff Baumgartner, Site Editor, Cable Digital News

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