Harmonic Sales Decline in Q3

Cites Consolidation, Currency-Driven Delays
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Harmonic posted a significant drop in revenues for the third quarter, including a bite out of its cable edge business, amid ongoing challenges posed by the consolidation of key service provider customers and “currency-driven” deployment delays.

Harmonic posted Q3 sales of $83 million, down from $108.1 million in the year-ago quarter, and a GAAP net loss of $4.8 million (5 cents per share), versus year-ago net income of $1.1 million (1 cent per share). Analysts were expecting sales of $82.6 million. Harmonic also forecast Q4 sales of $78 million to $88 million, below analyst expectations of $92.3 million. Harmonic reduced its Q3 guidance last month. 

“The confluence of these factors resulted in nearly two dozen material orders being delayed out of the third quarter,” company CEO Patrick Harshman said on Tuesday’s earnings call.  “One of our largest anticipated third-quarter project was postponed as a direct consequence of customer M&A, and we saw several emerging markets deals delayed as a result of currency considerations.”

Harmonic’s Cable Edge business took a hit, as revenue dropped to $13.5 million on a sequential basis, to $11.5 million.

Harshman said the decline stemmed from spending pullbacks tied to M&A and slow demand as customers prepare to spend on CCAP (converged cable access platform) and DOCSIS 3.1-based products.

That migration “is challenging for us in the near-term, but highlights the mid and long-term opportunity associated with our CCAP strategy,” Harshman said, adding that Harmonic expects a “modest rebound” in Q4 as some delayed Cable Edge projects move forward.

On the video side, he said there are “encouraging signs” that the market is moving ahead with Ultra HD/4K and HEVC compression, citing recent 4K-facing launches and strategies being put into play by Rogers Communications and DirecTV

“We think the long term strategy is sound, but it will take time to bear fruit; we would avoid the stock,” Raymond James analyst Simon Leopold said in a research note issued Monday that maintained his “Underperform” rating on Harmonic. “Participation in the CCAP market offers promise but likely without material contributions until 2H16.”

Harmonic also announced some key personnel moves. CFO Carolyn Aver is leaving the company to join her husband in running their family winery. Succeeding her is Harold Covert, who is stepping down from the Harmonic board as he takes on the CFO role.

Separately, George Stromeyer, Harmonic’s SVP of worldwide sales, is leaving the company to pursue other opportunities.

Harmonic shares were up 22 cents (3.86%) to $5.92 each in mid-day trading Wednesday.