Harmonic turned in a solid third quarter that beat Wall Street estimates, but at least one analyst is concerned about the lower margins Harmonic is squeezing out of its first significant shipments of new dense edge QAMs that will eventually become fully integrated Converged Cable Access Platform (CCAP) products.
Harmonic posted earnings of 7 cents per share on revenues of $122.9 million, beating analyst expectations of 5 cents and $120.5 million.
On the flip side, Harmonic’s fourth quarter sales forecast of between $115 million to $125 million were below consensus for sales of $127 million, Raymond James analyst Simon Leopold said in a research note issued Tuesday.
Leopold also pointed out that Harmonic announced its “first multi-million dollar order” for the NSG Pro, a product that is starting off as a downstream-only, dense edge QAM and will eventually add on upstream and cable modem termination system (CMTS) components that will turn it into a fully-integrated CCAP.
“Although early CCAP success is a positive, the 200-400 basis point hit to gross margin suggests very aggressive pricing, and by our estimate, NSG gross margin is below 25%. The strategy makes sense, but the competitive landscape for the next generation of cable network equipment will be challenging,” Leopold wrote. “[T]he impact to gross margin may be a point of caution for some investors,” he added.
In CCAP, Harmonic is pursuing a hotly contested market where it will face off with Arris Group, Cisco Systems, CommScope, Casa Systems, as well as newcomers such as Gainspeed, a company that is developing a virtualized form of CCAP and recently landed a “B” round of funding led by Juniper Strategic Investments.