SeaChange Gets SeaSick Over Q4

Video server player SeaChange International Inc. (Nasdaq: SEAC) took a hammering on the markets this morning after it said its fourth-quarter revenues would be about 25 percent lower than previously expected.

Its share price dropped $2.76, almost 17 percent, to $13.80 in pre-market trading after it said that revenues would be between $28 million and $30 million for the last three months of fiscal 2004 (to January 31), down from the previous guidance of $41 million (see SeaChange Sees Lower Q4).

Revenues in the third quarter were $42.6 million (see SeaChange Posts Q3 Profit).

On a conference call this morning, CEO Bill Styslinger said the shortfall was due to delays in received orders and revenue recognitions, and "not lost business. This is just a timing issue." He said one North American VOD system customer accounted for $4 million and one overseas customer came in $3 million short, and, in all, VOD revenues fell short by $10 million. The company expects, but can't guarantee, that all those revenues will come in during the first quarter.

Styslinger noted that SeaChange had transformed from a U.S. cable-focused company to one that now has telecom carrier customers in multiple regions, citing Japan's NTT Group (NYSE: NTT), Verizon Communications Inc. (NYSE: VZ), and U.K. cable firms (see Brits Do VOD With SeaChange and Verizon Makes Microsoft Video King).

The CEO says the second half of 2005 and 2006 are set to be very strong, based particularly on the spending plans of major customer Comcast Corp. (Nasdaq: CMCSA, CMCSK), and CFO Bill Fiedler says there's a "lot going on in Asia, and we're going to be a big part of that."

Yvette Gordon-Kanouff, the firm's VP of Strategic Planning, notes that SeaChange still has a very strong relationship with Comcast, which has "told us we will remain the main VOD server provider," though there's every likelihood Comcast will seek a second source as it expands its VOD services.

Comcast accounted for 49 percent of SeaChange's revenues in the third quarter. The company wouldn't say whether Comcast was the firm behind the $4 million fourth-quarter shortfall.

Gordon-Kanouff also noted that SeaChange was working very closely with Microsoft Corp. (Nasdaq: MSFT) to integrate with its set-top box software and IPTV middleware. "That relationship is very positive. We're working with Microsoft on all its [IPTV] platforms."

Microsoft has emerged as the key software supplier to the RBOCs as they plan their video- and TV-over-broadband strategies (see SBC Awards Microsoft $400M IPTV Deal and BellSouth Trials Microsoft's IPTV).

SeaChange faces strong competition in the video server sector from the likes of Arroyo Video Solutions Inc. and Kasenna Inc., among others (see Who Makes What: Telco Video and Arroyo Touts MSO Customers).

— Ray Le Maistre, International News Editor, Light Reading

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