SeaChange, Concurrent Slide, Despite Rising Revenues

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Video-on-demand server providers SeaChange International Inc. and Concurrent Computer Corp. both posted strong quarterly revenue increases, driven largely by growth in deployments.

But concern that some MSOs were slowing VOD rollouts caused both stocks to drop in the days following their respective earnings announcements.

For its fiscal fourth quarter, Concurrent's VOD division posted revenue of $17.4 million, compared to the year-earlier period's $6.2 million. Full-year revenue for the division reached $48 million, compared to $23.8 million a year ago

SeaChange posted a 23 percent jump in quarterly revenue, notching sales of $33.3 million in the three-month period ending July 31, compared to $27 million last year.

Quarterly VOD revenue rose to $15.1 million from $10.9 million — the bulk of the company's overall revenue gain.

SeaChange also picked up Insight Communications Co.'s server business. Insight had used servers from bankrupt provider Diva Systems Corp.

Shares in both companies fell after each earnings announcement. Concurrent — which finished at $4.38 on Aug. 19 — closed at $2.82, down 25 cents (8 percent), on Aug. 28. SeaChange, which closed at $8.91 on Aug. 22, ended Aug. 28 at $7.15, unchanged on the day.

Concurrent said it expected first-quarter 2003 VOD revenue to hit $13 million to $14 million, a slight sequential drop from fourth-quarter numbers.

The estimated revenue decline stems from evidence that some operators — notably Cox Communications Inc. — have slowed down their VOD rollouts, contributing to investor skittishness over Concurrent's stock.

SeaChange said it expects to hit the same $33 million in overall revenue it reached in this quarter, and to hit $15 million in quarterly revenue for VOD.

The company's net loss for the quarter came in at $635,000, which included legal expenses and accrued interest charges related to a May 2002 jury verdict. In that decision by a U.S. District Court in Delaware, nCUBE Corp. won $2 million in damages and a 7 percent royalty fee from SeaChange for violating nCUBE's patent on scalable-server architecture.

The result compares to a net loss of $684,000 in last year's comparable quarter.

For its part, Concurrent said its overall net earnings reached $4.4 million for the fiscal year, compared to a net loss of $6.2 million in the year-earlier period. Concurrent said its technology has been or will be deployed in 39 markets, serving 10.4 million basic and 3.1 million digital subscribers.

Time Warner Cable leads the vendor's list of MSO customers, with 16 Concurrent markets serving 5.3 million basic subscribers and 1.7 million digital homes. Time Warner accounts for 335 of the 569 servers Concurrent has deployed. Concurrent also has large deals with Charter Communications and Comcast Corp.

Concurrent president Jack Bryant said two unnamed MSOs would roll out its personal video channel application later this year. He also said Concurrent was one of two vendors to pass recent certification tests at AT&T Broadband.

SeaChange's VOD footprint now passes 11.5 million basic-cable homes, said Styslinger. On tap are launches in AT&T Broadband's Los Angeles and Atlanta systems, which are switching out servers from Diva. SeaChange also plans to launch in 10 Insight Communications Co. markets and with another undisclosed MSO.

The vendor expects to generate future revenue growth from replacements and upgrades, personal-TV services and international sales, SeaChange told analysts.

The biggest gap in domestic server sales is with AT&T Broadband, which has only rolled VOD out in two markets.

Comcast — which plans to merge with AT&T Broadband by year-end — uses servers from both SeaChange and Concurrent.

ADC DIPS

In other earnings news, ADC Telecommunications Inc. said it will try to make do with less on the top line. The company made that announcement as it released its third-quarter earnings, which included a net loss of $629 million on revenue of $235 million.

The large spike in net loss related to one-time non-cash income tax charges. Of greater concern is the telecommunications-sector meltdown, which has forced ADC to lower quarterly expenses to below $250 million.

"As the extent of the downturn and the eventual recovery in this difficult market is uncertain, we are now taking additional cost reduction actions to lower our quarterly sales breakeven point below $250 million," chairman and CEO Rick Roscitt said in a statement.

In last year's third quarter, ADC posted a net loss of $58 million on revenue of $548 million.

A year later, revenue dropped to $235 million. In second-quarter 2002, revenue reached $298 million and net losses were $89 million.

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