Harmonic Expands TV Everywhere With Omneon

Harmonic Inc. (Nasdaq: HLIT) is poised to become a fiercer competitor to companies as diverse as SeaChange International Inc. (Nasdaq: SEAC) and Avid Technology Inc. (Nasdaq: AVID) in the wake of its $274 million acquisition of Omneon Video Networks , a maker of video playout and production servers, video storage and management systems, and video editing, transcoding, and search software.

Although there's some customer overlap, Harmonic, which makes broadband access equipment, servers, and software for on-demand services and video edge processing gear, believes the addition of Omneon's video production and playout tech will be complementary from sales and product standpoints. (See Harmonic to Acquire Omneon.)

Beyond the cross-selling opportunities, Harmonic says the marriage will help it combine and create new video systems that tie into carrier and programmer TV Everywhere initiatives. One example cited: the teaming of Harmonic's encoding gear with Omneon's video servers to output baseband video as well as the preparation and management of transport streams for delivery to TVs, Websites, and broadband–connected mobile handsets.

With Omneon on board, Harmonic thinks it can support a cross-platform video ecosystem that covers initial content production through its final delivery. The combination "creates a compelling strategic opportunity with no clear leader offering the full range of infrastructure solutions," Harmonic president and CEO Patrick Harshman said on Harmonic's first-quarter earnings call yesterday.

Omneon CEO Suresh Vasudevan, who was also on the call, said his company closed 2009 with more than $105 million in revenues, with about 70 percent of its business originating outside the US. He claimed that Omneon's flagship video playout server product, Spectrum, has about 22 percent of the market.

Omneon, a privately held firm based in Sunnyvale, Calif. (where Harmonic is also headquartered), is said to be profitable. It has more than 100 deployments with customers such as ESPN, A&E Networks, NBC Universal , Turner Broadcasting, Dish Network LLC (Nasdaq: DISH), Comcast Media Center (CMC) , and Discovery Communications Inc. (Nasdaq: DISCA, DISCB, DISCK).

Terms of the deal call for Harmonic to issue 17.1 million shares to Omneon shareholders, along with an additional $158 million in cash. They expect to close the deal by the third quarter of 2010. Harmonic expects the deal to be accretive to its earnings starting in 2011.

Earnings update
Harmonic announced the deal as it released first-quarter earnings. The company reported net sales of $84.8 million, up 25 percent year-on-year, just missing Wall Street's expected $85.6 million. GAAP net income hit $5.3 million, or 5 cents per share, versus a year-ago net loss of $18.8 million, or 20 cents per share. (See Harmonic Closes Q1.)

Comcast Corp. (Nasdaq: CMCSA, CMCSK) was Harmonic's largest customer in the quarter, representing 14 percent of total revenues.

Harmonic now expects second- and third-quarter sales to be in the range of $180 million to $190 million, a bit better than the $179.7 million expected by the Street.

— Jeff Baumgartner, Site Editor, Light Reading Cable

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