Harmonic's Cable Virtualization Biz Looks a Bit More Real
Rollouts of CableOS, the virtualized form of Harmonic's Converged Cable Access Platform (CCAP), have yet to achieve massive scale, but the needle continues to move in the right direction -- forward.
At the end of Q3, Harmonic Inc. (Nasdaq: HLIT) had commercial deployments and field trials underway with 25 cable operators, up from 20 at the end of Q2, company CEO Patrick Harshman said on Monday's earnings call. Revenues tied to CableOS were also up 153% year-over-year, he added.
CableOS, a virtual CCAP that can run on off-the-shelf hardware as well as existing CCAP chassis, is now being used to deliver broadband services to more than 480,000 cable modems worldwide, up roughly 20% from last quarter. Harmonic also saw shipments of CableOS nodes, used for new distributed access architectures, rise 174% year-on-year.
"The key takeaway here is the CableOS's virtualized software architecture can and is being successfully deployed and operated at scale, delivering significant benefits to our early customers," Harshman said.
Harmonic hasn't revealed all of the operators that are deploying or testing CableOS, but announced last week that Ohio-based Buckeye Broadband has migrated its 120,000-plus subs to the new platform.
Harshman also shed more light on the operational efficiencies that Buckeye aims to achieve with CableOS, noting that the MSO has been able to consolidate about 15 former CMTS (cable modem termination system) sites to a "single CMTS operations center," where CableOS is running on dense, commercial off-the-shelf servers. (See Cable Seeks the Right Business Case for Virtualization .)
Harmonic has also announced a CableOS deal with Sweden's Com Hem AB . Comcast Corp. (Nasdaq: CMCSA, CMCSK), Harmonic's largest customer, has a warrants agreement that factors in CableOS trial and deployment milestones. The extent of that work is not being revealed, but Harmonic disclosed in an 8-K filing in August that a vesting milestone was reached when Comcast accepted the completion of CableOS field trials as of July 31. So progress is being made. (See Harmonic's New Comcast Deal Oozes Subtext.)
In addition to helping cable operators shift to software-driven architectures and away from purpose-built hardware, Harmonic will use CableOS to cut into a CCAP market that is dominated today by Arris Group Inc. (Nasdaq: ARRS), Cisco Systems Inc. (Nasdaq: CSCO) and Casa Systems Inc. . (See How Harmonic Aims to Disrupt CCAP Market.)
In a research note, Raymond James Financial Inc. (NYSE: RJF) analyst Simon Leopold acknowledged that virtualized CCAPs deliver inherent advantages, but expects that adoption by large cable operators "will be more gradual," given the added complexities when compared to a typical hardware-based deployment. However, he said progress with trials could encourage more operators to jump in.
Jefferies & Company Inc. analyst George Notter likewise noted that CableOS is tied to Harmonic's long-term competitiveness, but that it's still "too soon to definitely call their success here."
On the video side of the house, Harmonic said 4K/Ultra HD activity continues to heat up, as Q3 product sales equipped with the new pixel-packed format jumped 138% from Q2.
However, total video product sales, at $72.9 million, were down 13% year-over-year, and came in below Raymond James's estimate of $75.1 million.
The general dynamics for video encoding and processing "remain largely healthy," but the evolution of the networks to support new services require extensive planning from carriers and "could lead to softness and continued challenges in the near term," Leopold said.
Harmonic Q3 sales of $100.6 million were in line with guidance of $93 million to $103 million, and just ahead of analyst expectations of $99.5 million.
— Jeff Baumgartner, Senior Editor, Light Reading