Set-Top Slowdown Spooks S-A

11/16/2003 7:00 PM Eastern

Scientific-Atlanta Inc. shares dipped 5% ($1.48 per share) between Nov. 7 and Nov. 11 on fears that cable operators — especially Cablevision Systems Corp. — were slowing down their purchases of digital set-top boxes.

Cablevision released its third-quarter results Nov. 11, reporting digital-subscriber additions of 158,000 in the period, down from 196,000 second-quarter additions. That sent S-A stock down, as the Atlanta-based cable-equipment provider is one of Cablevision's biggest suppliers of digital set-tops.

According to S-A's 10-Q quarterly report, filed with the Securities and Exchange Commission Nov. 12, sales of digital set-tops were up 54% year-over-year in the fiscal first quarter (ended Oct. 3), but down slightly on a sequential basis. Of the 940,000 digital boxes S-A shipped in the period, 60,000 were sold to Cablevision.

Cablevision accounted for 19% of S-A's total sales in fiscal 2003.

While other MSOs have experienced slower digital growth as the service matures – most cable operators are either at or past 30% digital-services penetration – Cablevision was expected to add digital customers at an accelerated rate because it only launched its digital product last year.

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