Terayon Records First Quarterly Profit


Revenue more than tripled at Terayon Communication Systems
Inc. for the fourth quarter and year ended Dec. 31, and the company reported its first pro
forma profit since its formation in 1993, a full three quarters before Wall Street

Terayon, which makes broadband-networking equipment, said
its fourth-quarter revenue surged to $38.7 million, up 200 percent from the same period
last year. Revenue for the year also tripled to $97 million from $31.7 million in 1998.

The company also reported pro forma net income, excluding
special charges, of $1.2 million, or 4 cents per share, during the quarter. When special
charges are included -- such as noncash charges for in-process research and development,
and the amortization of intangible assets related to two recent acquisitions -- the
company lost $19 million, or 83 cents per share, during the quarter.

For the year, pro forma net losses were $8.2 million, or 40
cents per share, compared with $23.2 million ($2.58) in 1998. Including special charges,
net losses for the year were $64.1 million, or $3.11 per share, compared with $47.1
million ($5.25) in 1998.

Terayon stock surged on the news, rising more than $12 per
share to $95.38 in morning trading Jan. 19. The stock has been on the rise for the past
week, climbing from $62.38 Jan. 10 to $82.63 Jan. 18.

Terayon CEO Zaki Rakib attributed the fourth-quarter profit
to growth in the market and "the aggressiveness of our customers."

Terayon had record fourth-quarter shipments of more than
400 headend systems and approximately 113,500 cable modems, bringing total shipments to
date to 1,528 headends and more than 340,800 modems.

"Cable operators definitely woke up in the last couple
of quarters," Rakib said. "DSL [digital subscriber line] is also starting to
show some aggressiveness."

And that aggressiveness is expected to continue, especially
in the wake of America Online Inc.'s $152 billion stock and assumed-debt acquisition of
Time Warner Inc.

Rakib said the deal will benefit cable-equipment
manufacturers as cable operators put increased emphasis on rolling out new services. But
he added that the full impact of the merger will take a while before it is realized.

"All of a sudden, you have one company that does it
all," Rakib said. " What does that mean for equipment vendors? I think it is
positive. What we're trying to build is a platform for multimedia, data and voice. AOL
Time Warner [Inc.] may accelerate these new platforms."