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Harmonic Casts a Cautious Eye on '09

Jeff Baumgartner
10/28/2008

Harmonic Inc. (Nasdaq: HLIT) posted solid third-quarter numbers, but the digital video specialist said broad economic concerns have caused it to temper enthusiasm as it tries to gauge what to expect next year.

"Looking ahead to 2009, the global economic environment clearly creates some uncertainty, [but] we are convinced the fundamental market and the trends toward more video being delivered in more formats over more devices over more networks by competitor operators remain in force," Harmonic president and CEO Patrick Harshman said Monday during the company's earnings call.

As for the quarter already in the books, Harmonic posted net sales of $91.5 million, up 11 percent from the year-ago quarter, with GAAP net income of $12 million, versus $9.4 million a year ago. Harmonic ended the period with cash and cash equivalents of $293.4 million, up from $288.2 million in the previous quarter. (See Harmonic Posts Q3.)

Cable remained Harmonic's primary breadwinner, accounting for 63 percent of revenues, followed by satellite (22 percent) and telcos and "other" customers (15 percent).

Citing decent bookings, Harmonic chief financial officer Robin Dickson said the company would hold to the high end of its second-half revenue forecast (between $175 million to $185 million), with fourth-quarter net sales slated to be in the range of $92 million to $95 million. "Beyond the fourth quarter, the picture is less clear," Dickson added.

That's because most of Harmonic's customers are currently reassessing their capital expenditure plans for 2009 in light of uncertain economic conditions.

"Let me be clear, it is not that we have received negative or concerning news," Harshman later clarified. "This is the time of the year where many or most of our customers are actually engaged in setting… capital budgets for 2009."

But, considering the broader economic situation, "I think we have reason to be perhaps a little bit more slow in terms of coming out with our estimates of what is going to happen in 2009," he added.

Comcast Corp. (Nasdaq: CMCSA, CMCSK), one of Harmonic's largest customers, is scheduled to report third-quarter figures Wednesday morning.

As for future growth drivers, Harshman pointed to demand for Harmonic's universal edge QAM products, which provide capacity for multiple types of cable services, including broadcast digital video, video-on-demand, IPTV, and even downstream high-speed Docsis traffic in "modular" cable modem termination system (M-CMTS) configurations. (See Universal Edge QAM Market Heats Up.) Among those applications, Harmonic is seeing substantial edge QAM activity centered on M-CMTS deployments and expansions of "traditional" VOD services, Harshman said.

— Jeff Baumgartner, Site Editor, Cable Digital News

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nextinning
nextinning
12/5/2012 | 3:28:38 PM
re: Harmonic Casts a Cautious Eye on '09
Guys, give us a break and provide some honest reporting. In your article you wrote (just one example of clear negative bias):

"Citing decent bookings, Harmonic chief financial officer Robin Dickson said the company would hold to the high end of its second-half revenue forecast"

Decent bookings? Try all time record bookings with a book to bill ratio of 1.2 to 1. Even more impressive is the fact it was accomplished with record quarterly revenues.

Also, if you listened to the conference call, Harshman stated he has seen NO CHANGE in customer activity and that he believes Harmonic would grow at "double digits" in 2009.

Harshman is a responsible and transparent CEO - more so than any other CEO in the space. He has provided solid growth and nine straight profitable quarters - another Harmonic record. It would be irresponsible for any CEO today that depends on cap/ex to forecast ahead of when his or her customers forecast spending. We don't know what will happen to the cap/ex picture in 2009, but we do know that Harmonic is operating at the top of its game - producing both record sales and record profits and doing so by taking market share from companies you seem to write about more favorably.
Jeff Baumgartner
Jeff Baumgartner
12/5/2012 | 3:28:38 PM
re: Harmonic Casts a Cautious Eye on '09
Thanks for shedding some added light on the situation at HLIT, as they do appear to be doing better than the others in the field. I obviously don't share your view on reporting bias, but if I'm going to be accused of it I suppose it's better to have it on the negative side of the spectrum. JB
nextinning
nextinning
12/5/2012 | 3:28:37 PM
re: Harmonic Casts a Cautious Eye on '09
Jeff, Thank you for responding. A few years ago, prior to Patrick Harshman taking over as CEO, the opinions expressed here were often critical and on the mark; maybe not to the full extent, but the company certainly wasn't operating up to its potential. Harshman has changed that - changed it from stem to stern.

If you would like to talk about Harmonics, I can be reached through nextinning.com. I would enjoy the opportunity to talk and, if you're interested, would be glad to attempt to arrange a time for you to visit the company.

Regards, Paul McWilliams
DCITDave
DCITDave
12/5/2012 | 3:28:35 PM
re: Harmonic Casts a Cautious Eye on '09
re: "(just one example of clear negative bias):"

Okay, I'll bite. What are the other examples?

ph

Jeff Baumgartner
Jeff Baumgartner
12/5/2012 | 3:28:35 PM
re: Harmonic Casts a Cautious Eye on '09
Hey Paul,
Thanks for the offer. I catch up with them at shows, via briefings, and when they run through the Denver area on occasion...but I'm probably overdue for a market intelligence trip through CA. JB
nextinning
nextinning
12/5/2012 | 3:28:26 PM
re: Harmonic Casts a Cautious Eye on '09
Phil, I could nit pick a few things like using GAAP earnings when writing about Harmonic versus non-GAAP earnings for Arris. Not noting that Harmonic is taking the lions share of the universal EDGE QAM business and enjoying great success in the M-CMTS market - a totally new market for Harmonic. The fact Harmonic now has a product to provide cable companies with IPTV-like features and an insertion product (remember how you guys used to love Terayon) that is approved by Microsoft Mediaroom. I won't even get into the HectoQAM and Gator because I don't want to discourage you from listening to the conference call for yourself or spending some time at Harmonic's booth at the next trade show.

I've followed the companies in this space for nearly a decade and as it stands today, Harmonic is producing record profitability and has the most highly differentiated product line in the business. But hey, don't take my word for it, dig in and see what you think - Harmonic has changed radically during the last three years and I think Light Reading owes its readers a current view of the company.
gbmorrison
gbmorrison
12/5/2012 | 3:28:24 PM
re: Harmonic Casts a Cautious Eye on '09
Paul do you own any HLIT? How much HLIT is in the Next Inning model portfolio?
nextinning
nextinning
12/5/2012 | 3:28:20 PM
re: Harmonic Casts a Cautious Eye on '09
In the video infrastructure sector, at this moment, I own ARRS, CSCO and HLIT. I also own several chip companies tied to the sector. I disclose personal holdings with every report I write at NI and when talking with reporters. However, that has very little to do with my original post.

I think journalists, particularly when covering a technical subject, need to focus on even-handed reporting of facts. That is what it takes to be good. To be great, a journalist must also recognize when there is a change. Light Reading has been stuck in a rut with Harmonic and should reevaluate its opinion with an open mind.

OK, it's your turn, what interests do you have in the video sector?
DCITDave
DCITDave
12/5/2012 | 3:28:17 PM
re: Harmonic Casts a Cautious Eye on '09
I don't think we're stuck in a rut at all. When they do something interesting, we cover it.

Obviously we don't have personal stakes in the company, so we'll seem a little cool to them compared to folks with thousands of dollars at stake.

But I think we do a pretty good job of covering HLIT for what it is.

ph


Jeff Baumgartner
Jeff Baumgartner
12/5/2012 | 3:28:16 PM
re: Harmonic Casts a Cautious Eye on '09
As a general matter, I'd say we do our best to provide as much balance as we can with these folks, though you obviously have some disagreement on the HLIT matter, though it's the first such complaint that's crossed my way. But we'll be following them closely, along with the others, that give us a decent barometer on the cable arena. At the same time, we've got to be careful not pledge our undying love for one or another, but know that your comments are appreciated. JB
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