Revenue Rises at S-A, C-COR.net

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Quarterly earnings reports from leading cable-equipment vendors are trickling in, and although year-over-year results continue to look ugly, sequential gains in revenue suggest there is of light at the end of the tunnel.

C-COR.net Corp. posted second-quarter revenue of $54 million for the period ended Dec. 31 — a drop from $67.2 million a year ago, but better than its fiscal first quarter of $44.6 million. The company recorded a net loss of $4.7 million, compared to $497,000 in net income in the same period a year ago.

Scientific-Atlanta Inc. posted second-quarter earnings of $15 million on revenue of $352 million — figures that showed a sequential improvement, but a decline when compared with a year ago.

In 2002, S-A posted $39 million in earnings on $418 million in revenue. But sales rose sequentially, from $312 million in the July through August period to $352 million in the most recent quarter.

And C-COR.net expects its third-quarter revenue (January through March 2003) to be in the $54 million to $60 million range, suggesting the company's worst patch might be behind it.

"We are adjusting our costs to match the business base going forward," said CEO Dave Woodle.

S-A's revenue is expected to remain under pressure because MSOs are driving toward free cash flow and thus keeping capital expenditures to a minimum, said chairman and CEO Jim McDonald.

But 2003 should have some upside, McDonald predicted. Comcast Corp. is expected to spend heavily to upgrade the former AT&T Broadband systems, he noted, while bankrupt Adelphia Communications Corp. has "resumed spending on plant upgrades at a moderate level."

Video-on-demand and the need to boost bandwidth to deliver cable-modem services should also drive equipment sales, McDonald added.

Surveying the landscape, C-COR.net's Woodle said Adelphia — which last week tapped former AT&T Broadband CEO William Schleyer to head the company — is likely to resume spending sometime this year, after its leadership issues are resolved. Charter Communications Inc., another financially troubled MSO, poses more of a question mark.

"We're not assuming much from Charter," he said.

Woodle was more optimistic about gaining share with Comcast. In the most recent quarter, 18 percent of the company's revenue came from the Philadelphia-based MSO — mostly stemming from rebuilds in former AT&T markets.

"We see them as a major customer going forward," Woodle said.

Historically, AT&T Broadband has provided C-COR.net with a lot of business, while Comcast has not been a big customer, he said.

On a sequential basis, S-A's McDonald said sales to Comcast, Cox Communications Inc. and Adelphia were up, while sales from Time Warner Cable and Charter were down.

Overall, McDonald said, Cablevision Systems Corp. and Time Warner represented about 40 percent of the company's 804,000 set-top shipments in the quarter. That could put set-top shipments to Cablevision in the 150,000-plus range.

S-A said it shipped 804,000 Explorer set-tops, 1,700 MultiQAM modulators and 189,000 WebStar cable modems in the quarter. McDonald said S-A shipped 43,000 HDTV set-tops and 31,000 digital video recorder-related set-tops. That DVR number was a large drop from the 90,000 shipped in the previous quarter.

The light at the end of the tunnel didn't include Motorola Inc. Its Broadband Communications Sector — essentially the former General Instrument Corp. — saw fourth quarter revenues drop to $489 million, from $579 million in fourth quarter 2001. And unlike S-A and C-COR, sequential revenue at Motorola dropped, from $519 million the third quarter to $489 million in the fourth.

Motorola COO Mike Zafirovski attributed the revenue drop to "reduced capex and changed ordering patterns to a shorter cycle."

What's worse, Motorola expected the broadband unit's first-quarter 2003 sales to be "down substantially" from the year-ago period — to the tune of 10 percent — as operators continue with capital cutbacks, Zafirovski said.

Despite the revenue drop, the broadband group posted operating earnings of $65 million, compared to $78 million for the year-ago period. Operating margins dropped slightly to 13.3 percent.

"Excellent cost controls have allowed BCS to maintain double digit operating margins despite sales decline," Zafirovski said. Motorola has laid off 50,000 workers over the past two years.

Zafirovski said Motorola shipped 1.2 million set-tops in the fourth quarter, down 100,000 units from the third quarter and 300,000 from fourth-quarter 2001.

Cable-modem shipments, however, increased to 1.1 million in fourth-quarter 2002, up 100,000 units from both third-quarter 2002 and fourth-quarter 2001.

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