No major capex cuts were seen at the end of 2008, but "not surprisingly, in 2009 thus far, we hear that cable operators, particularly Comcast Corp. (Nasdaq: CMCSA, CMCSK), have been incrementally cautious in their spending," Jefferies & Co. Inc. analyst George Notter surmised in research note posted today.
However, companies in the video networking sector appear to be fairly well protected thanks to surging competition and a rush by service operators to beef up their hi-def lineups.
Because of this, Notter sees Harmonic Inc. (Nasdaq: HLIT) as a winner even in these rough economic seas, rating it as Buy in part because it is "likely to benefit disproportionally" thanks to its menu of encoders, edge QAMs, and statmuxing gear. Harmonic, by the way, just posted its fourth-quarter numbers, and it looks like they did not disappoint. But we'll be listening in this afternoon to see how it sees its prospects for 2009 shaping up.
On the other end, word that Comcast won't deploy switched digital video (SDV) "in any significant fashion" this year is a negative for another company in Notter's coverage, BigBand Networks Inc. (Nasdaq: BBND), which, like Harmonic, makes "universal" edge QAMs and stands to gain as operators reclaim more analog spectrum and reapply it toward digital services. But BigBand, which Notter gives a Hold rating, doesn't report fourth-quarter figures until mid-February. (See Comcast Expands SDV Test Pool.)
"Obviously these types of plans are quite fluid, but a lack of progress on SDV at Comcast this year could potentially delay adoption by many other cable operators," he said. "Based on our analysis, we are further concerned that SDV deployment may have already peaked, particularly in North America, as cable operators may have already captured the majority of the bandwidth savings enabled by the technology."
BigBand, however, "is making headway in Asian markets, such as Korea," Notter acknowledges.
Further out, better news for BigBand might be found in the new CableLabs -specified Modular Headend Architecture (MHA). In addition to bridging the gap between the different protocols Comcast and Time Warner Cable Inc. (NYSE: TWC) use for SDV, the specs are expected to simplify SDV and drive down equipment costs. However, the financial and deployment benefits of that project won't be realized right away. (See MSOs Unite Against Telcos at the Headend.)
— Jeff Baumgartner, Site Editor, Cable Digital News