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Comcast Commits Millions to Harmonic's 'CableOS' Platform

Jeff Baumgartner
7/9/2019
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Harmonic's cable access network virtualization initiative got another lift this week amid word that Comcast had committed to pay millions in the coming years for an enterprise license for the vendor's CableOS platform.

According to an 8-K document filed Tuesday by Harmonic, Comcast has elected for enterprise licensing for CableOS effective July 1, and has committed to $175 million in software license fees over the four-year term of the deal.

CableOS, Harmonic's virtual Converged Cable Access Platform, is designed to run on commercial off-the-shelf hardware and support both centralized and newer distributed forms of the hybrid fiber/cable (HFC) network.

The new enterprise agreement is also subject to certain incentive credits that Comcast could earn pursuant to other purchases of CableOS-related products, Harmonic said.

Harmonic noted that Comcast will pay the initial $50 million of the enterprise license fees in 2019.

The enterprise license and monetary commitment is a clear sign that Comcast is moving forward with a plan to deploy CableOS, or a variety of it optimized for the MSO's networks, and ties into a broader effort to virtualize Comcast's access network.

As reported by Light Reading in May, Comcast is also considering a syndication model for a virtual cable modem termination system that would be powered in part by Harmonic's CableOS platform. If that bears fruit, it could enable Comcast to license a vCCAP product to other cable operators similar to how it syndicates X1 today to cable operators such as Cox Communications, Rogers Communications, Shaw Communications and Videotron.

For Harmonic, the new deal tightens its ties to Comcast while also shoring up its competitive positioning against other vendors that have developed or are developing virtualization products for cable networks. That group includes CommScope/Arris, Vecima, Cisco Systems, Nokia and Casa Systems.

The new enterprise license also follows an earlier warrants deal involving common stock of Harmonic based on Comcast's purchase and adoption of Harmonic products, including CableOS. According to the terms of that deal, signed in the fall of 2016, Comcast has the right to purchase up to 7.8 million shares of Harmonic at an exercise price of $4.76.

Harmonic said it deemed that the remaining milestones and thresholds required to fulfill each of the vesting requirements of the warrant agreement have been satisfied, achieved or otherwise waived.

Signs of life for virtualized, distributed cable networks
The new deal, which appears to be of a higher commitment than those initial warrants agreements, is a clear sign that Comcast's work with virtualization and distributed access architectures is progressing, said Jeff Heynen, research director of broadband access and home networking at Dell'Oro.

The new agreement also sets up Harmonic to see some decent positive momentum with CableOS in Q2 and ramp up further throughout 2019, he added. Harmonic is set to announce Q2 2019 results on July 29.

Investors cheered the deal. Harmonic shares rose 62 cents (10.37%) to $6.60 each in after-hours trading Tuesday following word of the new deal with Comcast.

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— Jeff Baumgartner, Senior Editor, Light Reading

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henrystrock99
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henrystrock99,
User Rank: Light Beer
8/18/2019 | 6:11:05 AM
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Glfrost
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Glfrost,
User Rank: Light Beer
7/10/2019 | 1:30:58 PM
Re: Stock surges, but questions remain
I agree with your concerns, but I would also add that Cable operators and vertically integrated like Comcast face even larger hurdles. The entire content model is failing dramatically and the CableOS approach is simply “lipstick on a sick pig” approach that does not address the failure of the current content model and very serious expense issues related to vast amounts of OTT content. They’re not sustainable on any level over the next 2-3 years at best. Network content value is dramatically decreasing and still is over valued for both streamers and cable channels. The threat & opportunity from ATSC 3 and 5G is ignored largely and chaotic irrational responses plague the industry.
Glfrost
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Glfrost,
User Rank: Light Beer
7/10/2019 | 1:21:52 PM
Wrong Direction w/Harmonic and Comcast
Open Source or common platform direction is essential and the Harmonic development is not consistent with Truly Converged Architecture multi network compatibility. It is another example a failure to understand real business opportunities. It maintains a closed network model that is not future proof or positive towards future network developments. The model is more of a “circle the wagons” new old school approach that does spell good news for future revenue opportunity. I predict substantial cash will be expended and revenues will continue to massively decline because it is too little too late to save the long term growth future of Comcast and its legacy media assets which are seeing dramatic underlying weakness. A lack of truly strategic thinking based on dramatic evolution of content creation and interaction finds Cable operators, Streamers and production facilities clueless about the future indicators-the subscribers are not viewed real stakeholders, but chapel and churn cord cutting numbers. This approach lacks dynamic vision of human trends on a galactic scale that could collapse both companies.
Jeff Baumgartner
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Jeff Baumgartner,
User Rank: Light Sabre
7/10/2019 | 9:47:37 AM
Stock surges, but questions remain
As an update, Harmonic shares were up ~26% Wednesday morning.

Raymond James's Simon Leopold weighed in with a research report, noting that the new deal suggests that Harmonic has largely addressed some earlier hiccups with its CableOS trials and is showing that the product can scale up beyond tier 2/3s now that it appears Comcast is ready to start "material deployment" of a virtual CCAP this year.

He added that the license agreement with Comcast is "incremental" and leaves some questions unanswered, including how much of the $50M for 2019 to be paid will be recognized as revenue or included in deferred revenue on Harmonic's balance sheet; and what is the corresponding opportunity for Harmonic to sell Remote PHY Devices (RFDs) to Comcast?

Expect that some of those questions will be answered on Harmonic's Q2 call on July 26. JB 
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