Terayon Halves Revenue Outlook

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Slowing proprietary cable-modem orders, dropping modem prices and trouble
among cable operators prompted Terayon Communication Systems Inc. to halve its
revenue outlook for the second quarter and announce a cost-cutting campaign.

In the announcement, the company issued revised revenue estimates for the
second quarter of between $21 million and $30 million, far below the prior
estimates of $50 million to $60 million. It is estimating a quarterly pro forma
loss of between 38 cents and 43 cents per share.

The announcements were significant enough for the Santa Clara, Calif.-based
cable-gear maker to halt trading on its stock Thursday.

CEO Zaki Rakib emphasized that the company is pinning its future market
success on its new Data Over Cable Service Interface Specification 2.0-based
products, but that market would take some time to develop.

He noted that interest in Terayon's DOCSIS 2.0 products is rising and, 'In
fact, we did receive orders or ship to three of the top five U.S. MSOs Terayon
DOCSIS 2.0-based modems.'

But given the bleak performance outlook, the company is looking to cut costs
internally.

The cutbacks will begin next quarter and will likely center on Terayon's
telco-equipment unit, Rakib said.

Terayon's failure to gain DOCSIS 1.1 qualification in the latest testing
wave, meanwhile, occurred in part because the unit also carries DOCSIS 2.0
capabilities.

'This is a way more complicated and complex project compared with any other
DOCSIS 1.1 CMTS [cable-modem-termination system],' Rakib said. 'However, it does
guarantee us that our lead, or time-to-market advantage, will be more
significant.'

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