Top Cable Gear Makers Endure a Dismal Spring

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Spring didn't particularly warm up cable's top gear providers, as second-quarter numbers for Motorola Inc. and Scientific-Atlanta Inc. were down due to dwindling sales, slower orders and lost Adelphia Communications Corp. business.

Motorola's Broadband Communications Sector had a rough quarter, with sales down 32 percent, to $554 million, and orders dropping 45 percent, to $420 million, as MSOs continued to slow their subscriber-equipment purchases.

The broadband unit posted a $304 million operating loss, compared to a $55 million gain a year ago.

Adelphia's bankruptcy gets much of the blame for the drop in orders. A good portion of the $50 million in backlogged orders canceled in the second quarter because of uncertainties in future sales were from the troubled MSO, Motorola CEO Ed Breen noted in a conference call last Tuesday.

Motorola has approximately $20 million in unpaid Adelphia receivables, he added. Not surprisingly, given Adelphia's plight, Motorola expects short-term sales to the MSO through 2003 to drop.

1.5M BOXES SHIPPED

Slumping sales aside, Motorola did ship 1.5 million set-top boxes in the quarter. It landed customer commitments for its new high-definition TV-enabled DCT-5100 from Comcast Corp. and Shaw Communications Inc., "demonstrating continued demand by operators in delivering advanced applications such as high-definition television," Breen said.

Motorola also shipped approximately 800,000 cable modems, which was up compared to the first quarter, Breen said.

Much of that increase was credited to strengthening retail sales. During the period, Motorola reached an agreement to become the exclusive cable-modem provider to retail chain Circuit City Stores Inc., Breen noted.

Internet-protocol products also showed some promise, with Motorola now taking part in more 20 IP telephony trials and five initial commercial deployments.

While Motorola projects that the second half of the year will brighten for its overall business, the broadband unit hasn't shown many signs of improvement. Motorola is projecting third-quarter unit sales will remain flat, compared to the second quarter.

A LOSS AT S-A

Scientific-Atlanta endured an equally cold quarter, posting its first loss in more than a year, due in large part to erased orders and lost sales from Adelphia.

S-A posted losses of $15.7 million, equaling 10 cents a share. Without the Adelphia losses and some $4.8 million in devalued investments and restructuring efforts, earnings would have totaled $44.5 million, or 28 cents a share. That still would have been well off net earnings of $73.4 million in the same quarter of last year.

The financial hit from Adelphia's bankruptcy included a write-off of $55.2 million in accounts receivable and $199.8 million in canceled orders.

But S-A has reached a tentative verbal agreement with the bankrupt MSO to set the terms for future orders, according to CEO James McDonald.

"I think we believe we have reached agreement, and right now we have to get that converted into a written agreement and signed," he said in a conference call last Thursday.

Excluding the lost business from Adelphia, S-A saw bookings for the quarter drop 55 percent, to $228.1 million. Similarly, sales sagged 37 percent, to $390.1 million.

Compared to the fourth quarter of 2001, sales of transmission products dropped 28 percent, to $119.9 million, while subscriber product sales dropped 43 percent, to $246.6 million.

On the brighter side, shipping volumes remained steady, with 805,000 Explorer set-top boxes and 272,000 WebSTAR cable modems delivered.

A major challenge for the cable market right now is operators' ability to raise capital at a time when they are trying to get to positive cash flow, said McDonald.

"Because we are dependent on the MSOs' level at allocation of capital spending, their challenge is immediately becoming our challenge," he said.

Given the dwindling product demand, cuts are on S-A's horizon. In July, the vendor eliminated a third shift at its Juarez, Mexico, manufacturing plant. It's now evaluating additional company-wide restructuring measures.

S-A expects to have that process complete in the next few weeks and will announce it at that time.

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