The long-anticipated disruption of the cable-access business arrived in earnest in the third quarter, with Silicon Valley upstart Harmonic riding the momentum of its virtual CCAP product, CableOS, to 14% third-quarter revenue growth.
The traditional cable-access market leaders, meanwhile, are still working to get their virtual Converged Cable Access Platform (vCCAP) solutions into commercial trials, while wrestling with a capacity glut of traditional broadband gear among their operator clients. CommScope saw its network and cloud business revenues slide 29% in the third quarter, for example.
Casa Systems, meanwhile, reported a 34% revenue decline, with CEO Jerry Guo lamenting that his operator clients are still in a “digestion phase” with all the gear Casa has already sold to them over the last few years.
After a couple of slow quarters of its own to start the year, Harmonic’s balance sheet currently reflects the momentum of a company first out the door with an innovative software product, CableOS. This software virtualizes such devices as the cable-modem termination system (CMTS), putting processes once handled by large proprietary hardware appliances on the backs of relatively cheap, commodity level x86 servers, which split everything up into elegantly managed “micro-services.”
Virtualization, along with an also-imminent move by cable operators towards Distributed Access Architecture (DAA), are the two trends currently disrupting the cable access tech business.
And Harmonic — a barbarian at the gates of a business traditionally dominated by Arris (acquired by CommScope at the end of last year), Cisco Systems and Casa Systems — is out in front of everyone.
It is already experiencing the improved margins of virtualizing hardware. The San Jose, California-based vendor’s cable-access business generated $55.7 million in the third quarter, $42.9 million of which was gross profit, the company said.
“Our virtualized CableOS solution was the primary driver of this [margin] growth,” Harmonic CEO Patrick Harshman told investment analysts during the company’s Q3 earnings call on Oct. 28.
Harmonic said it had deployed CableOS with 19 cable operators globally as of the end of Q3, serving 935,000 customer modems, up 20% from the end of Q2. Included in those deployments were two international Tier 1 operators, one of which is believed to be Liberty Global.
Perhaps the most important CableOS deal, though, is the $175 million multiyear agreement announced over the summer with Comcast, which has a warrants agreement with Harmonic.
In fact, Comcast is mulling an ambitious plan to syndicate the virtualized DAA network solution it’s developed using Harmonic tech, a system already deployed with more than 100,000 Comcast customers. For CommScope, this development has the potential to turn one of its biggest operator clients into a competitor in the networks and cloud market.
Battling to Stay on Top
Of course, no one is writing off CommScope as the cable access industry leader just yet.
“Even if Comcast does move forward with a syndication model, there is no guarantee that other operators will want to license it,” Dell’Oro Group analyst Jeff Heynen told Multichannel News. “Not every operator has adopted RDK [the Reference Design Kit] or X1 at this point,” he added, noting the other tech models syndicated by Comcast.
CommScope expects to be in the market with its own vCCAP product at the end of this year, which it calls vCore. That product is about to enter commercial trials.
Tom Cloonan, chief technology officer, network solutions at CommScope, continues to stress that the company’s vCore solution — when it does finally hit the market — will have advantages over CableOS and other vCCAP competitors.
Cloonan said vCore will benefit from a solid base of code and a rich set of features dating back 20 years through the Arris E6000 CMTS, as well as previous iterations.
“We think that’s a big benefit that will make our product very, very stable when it launches in the field,” Cloonan said. As for the notion that CommScope is somehow late to market, he said that the vast majority of virtualization and DAA deployments are still ahead of operators.
“Listen, the [vCCAP] vendors are only approaching 1 million modems,” Cloonan said. “That’s a small percentage of overall DOCSIS universe. We don’t think we’re late at all.”
Said analyst Heynen: “It’s really important to note that CommScope, Casa, Cisco, as well as Harmonic, will all be players in the virtual CCAP space, just as they will be in the DAA node space.
“Harmonic had to get to market early with Comcast as a lead customer,” Heynen added. “And that could certainly translate into syndication revenue should Comcast move in that direction. But cable operators still want choices and a vibrant supplier market, to protect themselves in case of M&A or other business changes.”
UPDATE: An earlier version of this story incorrectly stated the date for when commercial trials of vCore begin.