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Cable/Video

Vyyo Funding Hints at Cable Customers

The cable spectrum overlay company Vyyo Inc. (Nasdaq: VYYO) announced Monday it has received a $25 million vote of confidence from Goldman Sachs & Co. (See Vyyo Snares $25M From Goldman.)

Palo Alto, Calif.-based Vyyo makes, among other things, gear which can be used to dramatically increase the bandwidth potential of cable operators’ hybrid fiber/coax (HFC) access networks.

Goldman’s investment strongly suggests some cable companies are looking very seriously at placing Vyyo's technology in their networks.

“If you look at the facts, this is a company that has a $130 or $140 million market cap, a company that does $200,000 in revenue, so clearly Goldman Sachs did a lot of due diligence to put $25 million behind these guys,” one Wall Street source familiar with the situation tells Light Reading.

That due diligence almost certainly included conversations with Cox Communications Inc. regarding its plans for Vyyo’s technology, the source says. (See Vyyo Bets Big on Cable Overlay.)

Vyyo has for some time been working diligently in the board rooms and labs at Cox to win a place in the MSO’s last mile networks. And recent public statements by Cox suggest Vyyo's work is about to pay off.

Vyyo CEO Davidi Gilo put it this way during a conference call with equities analysts Monday: “Cox announced to the industry at the CableLabs Winter Conference their intention to integrate 3GHz passive devices in their next-generate architectural design.”

“We are strongly encouraged by their announcement for both near-term and long-term prospects as we believe we are the only provider of 3Ghz passives,” Gilo said.

That, at least, sounds warmer than what Cox said in December. “We don’t have any kind of a business agreement with them; we haven’t bought any of their products that I know of," Cox spokesman David Grabert told Light Reading at the time. Vyyo’s node-based amplifiers and premises-based passive optical devices (“passives”) increase bandwidth capacity by dramatically widening the normal frequency range of hybrid fiber/coax (HFC) pipe, according to the company.

The end result is fiber-like speeds of up to 100 Mbit/s to the home, Vyyo people say. That capability may become increasingly important to cable companies like Cox as their telco counterparts begin ramping up bandwidth in their DSL networks. (See Broadband BlahBlahBlah.)

Vyyo already has a contract with Cox to provide its T1 over HFC technology. A half a million in orders are being shipped now, and the revenue should begin contributing to Vyyo's bottom line in the first or second quarter of this year, Vyyo spokesman Walt Ungerer says.

Ungerer told Light Reading Cox has already “certified” Vyyo’s spectrum widening gear for deployment in its networks. He adds that his company is expending considerable recourses trying to win the same distinction in the networks of other North American cable companies.

That process is a big part of the reason Vyyo needs the new funding from Goldman. Vyyo’s quarterly burn rate in recent quarters has been in the $4 million to $5 million range. That fact, combined with meager revenue numbers, has been a concern for both public and private investors in the company.

Goldman’s $25 million funding package includes a $10 million convertible loan at 10 percent interest, a $7.5 million senior loan at 9.5 percent interest. The rest is venture capital in return for which Goldman receives 1.3 million Vyyo shares and warrants to buy 299,000 more. The credit lines come due in 2011, according to a March 20 SEC filing.

Goldman bankers must be staking their investment on Vyyo’s future prospects, because the present isn’t looking very pretty. Vyyo Monday reported a fourth quarter 2005 loss of $14.8 million, or 96 cents per share, compared to a loss of $8.9 million or 57 cents per share in the in the year earlier quarter.

Revenues for the quarter came in at $286,000, considerably less than the half million three analysts polled by Reuters Research had expected. Revenues for the year ago period were $225,000. Vyyo's Gilo said in a release Monday that 2005 was "designed as a year to re-position Vyyo for the future."

The combination of the funding announcement and the fourth quarter earnings made for a turbulent day on the NASDAQ for Vyyo. The stock had been trading in the $8.00 to $8.50 range last week, then opened Monday at $9.20 -- a 52-week high -- presumably on news of the Goldman Sachs funding.

But Vyyo’s earnings, announced after the markets opened, may have sobered some investors. Its shares sank $0.35 (4.7%) to $7.10 in mid morning trading on Tuesday.

— Mark Sullivan, Reporter, Light Reading

alchemy 12/5/2012 | 4:00:50 AM
re: Vyyo Funding Hints at Cable Customers As I understand the physics, the higher the frequency, the closer together you have to put the amplifiers on the cable coax. To adopt this technology, you'd have to rework the entire copper part of the cable HFC plant. There are also lots of places where the plant has too much noise and loss to boost the frequency so an operator would need to rewire entire neighborhoods.

The MSOs end up rebuilding their plant every 6 or 7 years. This is why cable companies have had the profitability model of airlines. They just got done telling Wall Street that they don't have to rebuild their plant again. I can see a migration to higher frequencies but it's unlikely to be at a rate that can make a startup profitable before the big players develop similar equipment. Anything that moves in this direction is going to be fed through CableLabs so all the IPR can get sucked out of the solutions to drive the price down.
kitesurfer 12/5/2012 | 4:00:40 AM
re: Vyyo Funding Hints at Cable Customers The only way the Vyyo solution works is if you rip out all the RF Amps and install Nodes in their place. This is called a Fiber Deep architecture and many of the Cable Optical companies make a "Fiber Deep" node. Basically what you are doing is reducing the number of Subs on the Node to less than a few hundered and reducing the RF Cable lenth to less than 1000ft. At this point you can use Vyyo's 3GHz passives, and you don't need any of their expensive amps in the middle. So basically your correct in assuming they need to do a MASSIVE rebuild to get the Vyyo solution in place. BUT once you do the Fiber Deep approach, the question is why bother with Vyyo's 3GHz solution anyway?? By going to a few hundred subs per node, you free up a lot of Cable Modem bandwidth so you don't need it for Data. The only application I can see is is you wanted to Simulcast both Analog and Digital TV, you could us the "low" band for Analog and the new "high" band for Digital. But how long is it going to be before you don't need Analog at all? Once you don't need Analog, then you don't need all the bandwidth, hence what to do with Vyyo?
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