Video hardware

Harmonic Q1 Sales Dip

Digital video specialist Harmonic Inc. (Nasdaq: HLIT) posted significantly lower sales and missed analyst estimates in the first quarter, as its customers continued to preach "cautious" capital spending during this tough economic patch.

Table 1: Earnings Snapshot
1Q08 1Q09 Change (%)
Revenues ($B) 0.087 0.067 -23%
Net Income ($B) 0.013 0.004 -69%
EPS ($) 0.14 0.04 -71%
Source: Harmonic Inc.
Q1 2009 net income and earnings per share are non-GAAP figures.

Table 2: Analyst Comparison
Analysts' Consensus Estimate 1Q09 Actual 1Q09
Revenues ($B) 0.075 0.067
EPS ($) 0.005 0.004
Source: Harmonic Inc. and Reuters.
2009 Q1 EPS are non-GAAP figures.

On yesterday's conference call, Harmonic president and CEO Patrick Harshman called the quarter both "challenging" and "encouraging": Challenging because of conservative spending by many of the vendor's customers, coupled with Harmonic's short-term integration of Scopus Video Networks (Nasdaq: SCOP); but encouraging because business is expected to ratchet up a bit later in the year.

Harmonic saw orders start to pick up in March, though not as strongly as the vendor has seen in previous years. "In April, we've seen a more robust base of orders, giving us optimism that we hit the bottom during Q1," said Harmonic CFO Robin Dickson.

He said Harmonic anticipates a modest revenue increase in the second quarter, with totals reaching a range of $72 million to $78 million. Although Harmonic isn't in the habit of providing full year guidance, Dickson noted that about 55 percent of the vendor's revenue historically comes in during the second half of the year.

Despite some encouraging signs, the company acknowledged that its visibility into the rest of 2009 remains a bit cloudy. "In this market, projecting exactly what's going to happen, particularly in the second half of the year feels more like art than science," Harshman said.

In the first quarter, cable was a relative "bright spot" in terms of bookings toward the end of the quarter, Asia "performed well," but the European sector "exhibited real weakness, especially in central and Eastern Europe," Dickson said. However, international sales represented 52 percent of Harmonic's revenues in the first quarter, versus just 39 percent in the year-ago period.

Comcast Corp. (Nasdaq: CMCSA, CMCSK) ended the quarter as Harmonic's largest customer, representing 16 percent of revenues, and was the vendor's only 10 percent-plus customer for the period. Cable represented 57 percent of revenues, followed by satellite (23 percent), and telcos/others (20 percent).

Scopus restructuring
Harmonic detailed some of the personnel-related moves tied to its $51 million acquisition of Scopus, a maker of video processing gear that provided Harmonic with more exposure to so-called "emerging markets." (See Harmonic Scoops Up Scopus for $51M, Harmonic Sews Up Scopus.)

Harmonic started 2009 with just under 700 employees but added 300 via the Scopus deal, which closed in mid-March. Harmonic has since cut about 240 jobs, primarily through a restructuring linked to the Scopus acquisition. Dickson said Harmonic is "on track" to realize projected annual "cost synergies" of $8 million to $10 million from the deal.

Harmonic is not breaking out Scopus's contribution on a going-forward basis, but the acquired firm brought in about $76 million in revenues last year. This year, the Scopus portion of the business "is probably a little weaker than… the core Harmonic, simply because of the exposure… to some of the emerging markets that have been particularly beaten up in the last six months," Dickson explained.

— Jeff Baumgartner, Site Editor, Cable Digital News

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