Bit Rate

BigBand: Big Ka-Blam

9/28/2007 4:25 AM

That’s the bummer about being publicly held. Whenever you hiccup – or in BigBand’s case, fall on your face and open up a bloody gash on your forehead – it’s on display for everybody to see.

BigBand said third-quarter revenues would be $35 million-$39million, at least $15 million lower than previously expected and as much as $23 million off. This is a gigantic miss by any measure.

As you’d expect, the stock has been pelted with rotten eggs. It opened Friday at around $6, off 33% from the previous closing price. And it’s down 65% from the post-IPO $17 per share just six months ago — the good ol’ days.

What went wrong in Q3? BigBand cited three factors: (1) switched digital video deployments "have required more software customization and integration than originally expected" (2) a phone company customer (apparently Verizon) "worked through some previously purchased inventory" and (3) weak sales for CMTS equipment, where BigBand has had very low market share to begin with.

It’s the problems on the SDV front that are the most painful blows, given BigBand’s continual touting of its leadership in this area.

What’s also interesting to note is that Cox Communications recently gave BigBand big kudos for helping the MSO complete an SDV rollout in Northern Virginia in just 6 weeks. Guess the takeaway for other cable operators is: Individual results will vary. Or, perhaps, as they say in weight-loss commercials, "results not typical"?

"Of all the things that went wrong, we believe the issue that is the most difficult one to understand for investors is the Switched Broadcast (SB) revenue recognition issue," ThinkEquity analyst Anton Wahlman wrote in a research note Friday. ("Switched broadcast" is another term for "switched digital video.")

According to Wahlman, BigBand gets 80% of the price upon product shipment and is paid the remaining 20% after full customer acceptance. "The delay in this 20% is what is causing [BigBand] to be unable to recognize the full 100% of the SB deployments at Time Warner, Cox, and elsewhere," he wrote.

Because the 20% balance is payable only after full integration has been completed, accounting rules cause BigBand to record 100% of the revenue from the customer to be deferred, in Wahlman’s analysis.

ThinkEquity reduced 2007 and 2008 revenue estimates for BigBand from $225 million and $286 million, to $177 million and $178 million. For the same time periods, the firm cut EPS estimates from $0.32 and $0.47 to ($0.17) and ($0.30).

Time for BigBand to take a BigBreath, and get back to work.

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