Path 1 Takes the Low Road
The company on Wednesday introduced the Ax100, a cheaper, stripped-down version of its Cx1000 video-over-IP gateway, which it has been selling for about two years (see Path 1 Gates Video Over IP). The new product, which will ship in about three months, will help Path 1 compete against low-priced video gateways from outsized Nordic foe Tandberg Television, which generated about 55 times as much revenue as Path 1 last year. Investors will be listening for Path 1’s strategy to enter the low-priced gateway market when the company announces first-quarter earnings at 5:30 EDT today.
The Ax100 is aimed at broadcasters that need to transport only compressed video and don’t want to pay for the blazing speeds necessary to move uncompressed video. The device spews up to 100 Mbit/s, making it a slower alternative to the Cx1000, which transports uncompressed video at 270 Mbit/s. According to David Carnevale, chief marketing officer at Path 1, the Ax100 will cost “less than half the price” of the Cx1000, which starts at $15,000. For more money, software upgrades can increase the Ax100’s speed to 213 Mbit/s or 270 Mbit/s of uncompressed video, giving customers room to grow.
The Ax100 rounds out Path 1’s product portfolio, giving customers a simplified alternative to the company’s high-end device. In theory, that should staunch the flow of business to Tandberg, which has established itself as the low-cost supplier of video-over-IP gateways. “Our opinion is we were excluded from a lot of opportunities because people saw some solutions that might be available at what appeared to be much more economical prices, but then those products did not do what we can do,” Carnevale says.
When Path 1 first introduced the Cx1000 in 2002, many broadcasters scoffed at the notion that broadcast-quality video could be delivered over IP networks. Since then, the company has fought to win credibility for its technology, and two recent breakthroughs have helped. First, Path 1 supplied routers for CBS’ high-definition television broadcast of Superbowl XXXVIII in February. Second, Cox Communications Inc. (NYSE: COX) announced last month that it is using Path 1’s routers to broadcast San Diego Padres baseball games (see Cox Plays Ball With Path 1).
“Over the last two and a half years, the progress of Path 1’s technology and their track record for having a product that actually does work over IP has become accepted by the broadcast industry,” says Gerry Kaufhold, an analyst at In-Stat/MDR. “Simply the fact that they’ve rolled out a product like Ax100 indicates that there are customers now willing to push broadcast over IP.”
Of course, the industry’s acceptance of IP hasn’t been lost on some of the largest suppliers of broadcast technology. In 2002, Scientific-Atlanta Inc. (NYSE: SFA) forged a partnership with Path 1 and accounted for 66 percent of the young company’s revenues. The following year, S-A began competing aggressively against Path 1 for cable-operator accounts. Path 1’s sales to S-A declined 68 percent that year, and cable operators dropped from 75 percent of the company’s sales in 2002 to 50 percent in 2003.
Path 1’s total sales in 2003 stayed flat at $2.7 million compared to 2002, and about a quarter of the revenue came from services. Product sales declined 18 percent during the year because of the loss of cable accounts. But the decline in cable business was offset by growing sales in the long-haul and broadcast markets, which together accounted for half of Path 1’s 2003 revenue.
Path 1 has carved a niche for itself as a supplier to long-haul carriers because it specializes in forward error correction technology, which ensures that packets aren’t lost during long-distance transport. Much of the company’s future sales are likely to come from long-haul carriers and broadcasters that use their services.
For 2003, Path 1 reported a net loss of $7.4 million, down from a loss of $6.4 million the previous year. The company raised $15.5 million in an IPO last year and had $7.8 million in cash at the end of 2003 (see Path 1 Takes the Plunge).
— Justin Hibbard, Senior Editor, Light Reading