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Harmonic Touts Progress With Virtualized & Distributed Cable Network Deployments

Jeff Baumgartner
2/4/2019

Harmonic said it gained some ground in Q4 with CableOS, its virtualized, software-driven form of the Converged Cable Access Platform (CCAP), as well as with deployments of a new class of nodes that fit into emerging distributed access architectures.

And while those two initiatives are related, Harmonic Inc. (Nasdaq: HLIT) is seeing deployments of CableOS pick up more rapidly with small- and mid-sized MSOs that are using the platform in tandem with centralized CCAP chassis. Likewise, the vendor is seeing its larger cable customers start to ramp up the deployment of new node hardware for distributed access architecture (DAA) deployments that are poised to add the software/virtualization element further down the road.

For CableOS, Harmonic said 29 customers around the globe have begun commercial deployments and field trials, including four of the top eight MSOs in North America and Europe. By year-end 2018, those operators had about 535,000 residential and business cable customers on networks powered by CableOS, up 11% from where the vendor ended Q3 2018. Harmonic has designed CableOS to run on off-the-shelf server hardware as well on as on existing CCAP chassis. (See Harmonic's Cable Virtualization Biz Looks a Bit More Real .)

This early wave of CableOS deployments is primarily for DOCSIS 3.1 upgrades on systems that use traditional centralized CMTS/CCAP architectures, Patrick Harshman, Harmonic's CEO, said on Monday's earnings call. The deployment figure "demonstrates that our fully virtualized technology is being deployed at scale," he added. (See 1Tennessee Selects Harmonic's CableOS to Deliver 1-Gig Broadband and How Harmonic Aims to Disrupt CCAP Market.)

Turing to DAA-specific activity, Harmonic said it deployed more than 1,000 nodes for that architecture in Q4, with software licenses for that equipment to be purchased by MSOs in the coming months.

Citing "challenging but groundbreaking progress" in recent months, Harshman expects "volume" deployments of new DAA architectures, which move key electronics of the system out to the node, to begin this year. However, "We'll still be on the on-ramp" in Q1, he added.


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Virtualization and DAA "are cousins," Harshman said. However, virtualization, driven by Harmonic's CableOS product, doesn't require DAA, as it can be deployed in legacy, centralized environments. Even so, DAA activity is starting to pick up with tier 1 operators deploying DAA, the company said.

"The largest operators that we're involved with are turning their chairs hard towards DAA," Harshman said, noting that this acceleration is happening with MSOs both in North America and Europe. (See Denmark's Stofa Offers Glimpse of the Future HFC Network.)

He didn't identify them by name, but Comcast Corp. (Nasdaq: CMCSA, CMCSK) (15% of revenue) and Charter Communications Inc. (14% of revenue) were Harmonic's two greater-than-10% customers for Q4 2018. (See Charter's Stock Pops As 2019 Cable Capex is Poised to Plummet .)

For Q4, Harmonic said total revenues climbed 13% year-over-year, to $113.7 million, with Cable Access-related revenues rising 80% year-on-year.

Harmonic also saw video segment revenues jump 22% in Q4, to $89.5 million. That was driven in part by a 58% sequential rise in 4K/Ultra HD shipments. "Frankly, it's been a long time coming," Harshman said with respect to the UHD momentum that Harmonic saw in the period.

The hiccup for Harmonic was its Q1 2019 guidance, which came in a bit light with expected revenues of $80 million to $90 million. As a result, Harmonic shares were down 12% in after-hours trading Monday.

Despite a slow Q1, Harmonic expects to see "pretty good pickup" for the rest of 2019 for sales across its cable access and video business segments, Harshman said.

— Jeff Baumgartner, Senior Editor, Light Reading

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Jeff Baumgartner
Jeff Baumgartner
2/5/2019 | 8:45:56 AM
Notter: CableOS still in 'show-me' mode
George Notter with Jefferies put out a note that he's "still on the sidelines" on the stock amid the solid Q4 alongside the disappointing guidance. And while Harmonic is making progress with CableOS, "it's not a given that their efforts will translate into meaningful commercial deployments at larger MSOs."

"We remain in 'show-me' mode regarding CableOS," Notter wrote.

As for guidance, he noted that Harmonic's expectation for its Video segment is $290 million to $310 million for full-year 2019, below Wall Street's expectations of $315 million. In the Cable Access segment Harmonic now sees revenues of $100 million to $130 million for 2019, below expectations of $147 million. JB 
Jeff Baumgartner
Jeff Baumgartner
2/4/2019 | 9:46:17 PM
About that Q1 guidance
Raymond James analyst Simon Leopold offered some color on the weaker guidance in a research note issued Monday night.

He noted that there could be a seasonable impact on that Q1 guidance, given that DAA deployments are exposed to outdoor construction. At the same time, he did acknowledge that smaller companies that are exposed to network transitions such as DAA and vCCAP (Casa Systems also falls into this group) are "more likely to exhibit lumpiness."

He also said some of his checks on the access side of HLIT's biz indicate that "some trials have struggled."

"We believe operators will continue to invest to evolve, but we hold a cautious view on the rate of change," wrote Leopold, who maintains his "Market Perform" on the stock.

JB
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