Video hardware

IPTV Sluggishness Slugs Tandberg TV

Video equipment maker Tandberg Television is blaming sluggish IPTV deployments and the loss of two large IPTV encoder contracts for its third-quarter revenue shortfall. And one bad quarter for Tandberg may signal a much bigger mess in the world of IPTV systems and networks deployed by the world's traditional phone companies. (See AT&T Still Has IPTV 'Jitters'.)

Tandberg TV announced Tuesday its revenues will be approximately $80 million for the quarter -- a full 20 percent less than the $100 million analysts had expected. The company said its pre-tax profit will be approximately $7 million, which analysts say also misses expectations.

"We didn't execute according to plan," Tandberg TV CFO Fraser Park says of the two lost encoder contracts. "We didn't do a good job tailoring the technology proposal to the specific needs of the customer," he says, adding that he doesn't know whether the contracts have now been awarded to competing vendors.

Park says the two lost contracts account for about half the company's third-quarter shortfall.

But two more problems bugged Tandberg TV. First, Park says that carriers are experiencing delays in "integrating IPTV middleware systems with legacy systems" in current deployments. That's causing the carriers to push back their schedules for buying Tandberg encoders, he says.

The second problem? Park says there's a general scarcity of high-definition MPEG-4 chipsets for the next generation of set-top boxes. This, again, is causing delays. Park says Tier 2 and Tier 3 carriers are taking a "wait-and-see attitude" on whether the new chipsets will integrate smoothly with other elements in the video distribution system.

Competitor Tut Systems Inc. (Nasdaq: TUTS) spokesman Keith Wymbs says his company isn’t the lucky winner of the two deals Tandberg TV is mourning. And he notes that his company feels Tandberg TV's pain over the sluggish IPTV market. He concurs that MPEG-4 chipsets are slowing the arrival of new set-top boxes, and that's holding up deployments in general.

Tandberg TV, a partner of Microsoft Corp. (Nasdaq: MSFT) and Alcatel (NYSE: ALA; Paris: CGEP:PA), is involved in several high-profile IPTV networks, such as deployments at PCCW Ltd. (NYSE: PCW; Hong Kong: 0008) and Swisscom AG (NYSE: SCM). But the company won't elaborate as to which of its customers is slowing its deployment pace for the reasons listed earlier.

The company's CEO Eric Cooney, explained in a prepared statement that Tandberg TV doesn't normally provide guidance numbers, but “given the circumstances we feel it is appropriate to provide our current outlook for fourth quarter 2006, where we expect revenues to exceed third quarter 2006 revenues by 5 percent to 10 percent."

Light Reading Insider analyst James Crawshaw says that guidance puts Tandberg TV at only $84 million to $88 million for the fourth quarter, 20 percent off analysts’ expectations of $108 million for the fourth quarter.

Tandberg TV says it will announce its full third-quarter results October 18.

— Mark Sullivan, Reporter, Light Reading

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