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Harmonic Pins Hopes On CCAP, Ultra HD

But Analyst Believes Vendor Will Be Challenged To Hit Its Growth Targets 1/29/2014 10:05 AM Eastern

Harmonic revenues grew slightly in the fourth quarter of 2013 as the video and cable edge supplier cited momentum for its budding Converged Cable Access Platform (CCAP) offerings alongside hopes that it is well positioned to ride the coming Ultra HD transition. 

Still, some analysts aren’t convinced that either category will move rapidly enough to enable Harmonic to hit its 2014 sales growth targets.

On Tuesday’s call, Harmonic CEO Patrick Harshman said the company recognized its first "multimillion-dollar" level sale for the NSG Pro, a platform that is starting off as a dense edge QAM, but will later add upstream and cable modem termination system (CMTS) pieces that will turn it into a full-fledged integrated CCAP, a super-dense platform that's expected to play a key role in cable's all-IP transition. Harmonic, which is working with Alcatel-Lucent on its two-way CCAP project, believes the phase II version of the NSG Pro is on track for traffic testing and initial qualifications by mid-2014.

Harshman said phase I of the NSG Pro product completed integration testing with “key North American cable operators” for downstream VOD, switched digital video and modular CMTS data services during 2013. He said Harmonic has already received a second multi-million dollar order for the NSG Pro during the current quarter.

Harmonic will be using the NSG Pro to tackle a CCAP market that’s poised to be worth between $1.5 billion to $2 billion annually. It will be battling for share against Arris, Cisco Systems, Casa Systems and CommScope.

Harmonic, which sold its HFC access network business (transmitters, amps, receivers and nodes) to Aurora Networks last year for $46 million, is also trying to stoke growth with a new class of video processing equipment that can support HEVC/H.265 encoding, a more efficient codec that operators will use to handle the 4K/Ultra HD video.

While Harshman doesn’t expect “massive upgrades” to commence this year, he said Harmonic is “positioned with product today;  we expect to have material revenue in 2014 on our way to taking advantage that's going to play out over several years.”

Harmonic posted earnings of 8 cents per share on sales of $120.2 million, below Wall Street expectations of $120.9 million. Harmonic said it expects first quarter sales of $105 million to $115 million and mid-single digit sales growth for the full year. Cable represented 35% of Harmonic revenue in the fourth quarter and 37% for the full year. Comcast, at 12% of sales, was Harmonic’s sole 10%-or-greater customer during the fourth quarter.

In a research note, Raymond James analyst Simon Leopold said Harmonic could be challenged to hit those growth targets, suspecting that encoding “faces a pause” prior to broad Ultra HD adoption, and that it could also take time Harmonic to hit its stride with CCAP during the early phases of MSO deployments because the market “likely favors integrated solutions offered by competitors and incumbent CMTS suppliers over Harmonic.”

September