Cable Tech

Harmonic's Q1 Gets a Haircut

Harmonic Inc. (Nasdaq: HLIT) warned that first-quarter revenues could be off by as much as 11 percent, citing declining demand among European service providers for video processing gear and softer-than-expected order rates in the early part of the period.

In preliminary first-quarter results announced late Monday, Harmonic cut non-GAAP earnings per share to 2 cents to 3 cents per share on revenues in the range of $125 million to $128 million. Wall Street analysts were expecting earnings of 9 cents and revenues of $137 million.

Heavy demand for its new edge QAM also caused Harmonic to lower its first-quarter non-GAAP gross margins to the range of 46 percent to 48 percent, versus previous estimates of 50 percent to 52 percent. Harmonic's HectoQAM (648 QAMs per two-rack unit chassis) carries lower gross margins than the company average early into deployments because operators don't tend to buy all of that capacity up front, but instead license and add new ports as they need it. But the good news for the quarter was that overall bookings rose 8 percent to $142.5 million. (See QAM-TUM Leap?)

Sluggishness across the pond comes after Harmonic saw international sales rise 14 percent in 2011. Harmonic didn't fault any particular region in Europe for the first-quarter sales slump, but in reporting out the company's fourth quarter in January, President and CEO Patrick Harshman did note that "business in southern Europe was pretty slow," though compensated by strength in northern Europe.

Harmonic's customer diversity would appear to help insulate it from prolonged shortcomings at any one service provider. Comcast Corp. (Nasdaq: CMCSA, CMCSK) was Harmonic's largest customer in the fourth quarter, but none of the vendor's top 10 customers represented more than 10 percent of revenues in that period.

Despite some apparent volatility in Harmonic's business, analysts aren't hitting the panic button yet. Jefferies & Co. Inc. VP of Communications Infrastructure Equity Research James Kisner maintained his hold rating, noting that he expects the company to report a revenue increase in the second quarter.

Harmonic shares were down 4.23 percent (21 cents per share) to $4.75 in afternoon trading Tuesday. The company is scheduled to issue final first-quarter results on April 24.

— Jeff Baumgartner, Site Editor, Light Reading Cable

Jeff Baumgartner 12/5/2012 | 5:36:44 PM
re: Harmonic's Q1 Gets a Haircut

Kind of a strange problem to have when you sell too much of something.  Harmonic's HectoQAM starts to get the vendor in the range of port densities required by CCAP but the margins on that product aren't that great in the early phases of deployment because msos can buy the capacity they need now and license additional capacity later , when they need it. While that's helpful to the MSOs, it can apparently put a bit of a hit on those product margins.

Arris has run into this product margin a bit with their port licensing model on the CMTS side.  Per-port costs for CCAP products are expected to be lower than they are in today's eQAMs and CMTS gear, so we may see more of this troubling trend for vendors when CCAP deployments begin to ramp up. JB

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