Euro Weakness Offsets Strength in US for Harmonic in Q2 2012

Posted by Joe Zaller
Jul 25 2012

Harmonic announced that its revenue for the second quarter of 2012 was $132.6m, down 1% versus the same period a year ago, and up 4% versus the previous quarter

GAAP net income for the quarter was $17,000, or $0.00 per share, versus GAAP net income of $400,000 or $0.00 per share during the same period a year ago.   Non-GAAP net income for the quarter was $7.2m or $0.06 per share, versus non-GAAP net income of $10.5 million, or $0.09 per share last year

The results were in-line with the company’s previously issued guidance of revenue $130m to $140m, but below the consensus expectations of equity analysts who were looking for revenue of $135m and non-GAAP net income of $0.07 per share.

On a GAAP basis, gross margins and operating margins for the quarter were 43% and -2%, versus 46% and 1%, respectively, last year; and 42% and -7% last quarter.  Non-GAAP gross margins and operating margins for the quarter were 48% and 7%, versus 51% and 11%, respectively last year.

Company CFO Carolyn Aver attributed the decrease in gross margins to product mix in the quarter, as well as the competitive environment, particularly in emerging markets.   

When asked on the company’s conference call with equity analysts about competitive pricing leading to lower gross margins, Harmonic CEO Patrick Harshman said emerging markets were particularly competitive.  However Harshman then went on to describe these markets as “beachfront property” where there is intense competition on the part of vendors to “get in on the foundation as new operators launch services and begin to expand.” Harshman went on to say that these market are strategically important and offer long-term growth potential. “We believe that being present as we are and as increasingly in places like Southeast Asia, in Brazil, in India, we think it’s very strategically significant. So, well, we’re not pleased with the gross margin, we believe the strategic value of the footprint that we’re establishing in these markets is quite valuable and important.”

On a product-line basis, video processing represented 45% of total revenue, production and playout (Omneon) represented 16% of total revenue, and edge and access revenue represented 25% of total revenue. Services represented 14% of total revenue and grew in absolute dollars.

On a segment basis, cable accounted for 48% of revenue, satellite & telco accounted for 21% of revenue, and broadcast and media accounted for 31% of revenue

International sales accounted for 54% of revenue in the quarter versus 59% during the same period a year ago, due primarily by weakness in Europe versus relative strength in the US.  More specifically, the company said that its revenue in the US grew by 10% in the quarter, but was offset by a 9% decline in Europe.  Service revenue in the quarter grew 13% versus last year, and the company said that it won more than 25 new projects for OTT video deployments, many at existing customers. 

Bookings in the quarter were approximately $139.5m, up 6% versus last year.  Harmonic said its total backlog of orders and deferred revenue now stands at $146m, an all-time record for the company. 

 

Omneon Performance

When asked by an analyst about the performance of Omneon, Harshman said the integration is “still a work in process,” and that Harmonic has been successful getting the Omneon sales force to take the historic Harmonic product line, including video processing and multi-screen products into the media and broadcast accounts, but he acknowledged that Harmonic  is doing somewhat less of a good job kind of cross selling the Omneon products the other way.

However Harshman went on to hint at some exciting prospects for the Omneon business, saying  “One of the kind of the apples in our eyes in terms putting Harmonic and Omneon together was to really to develop a whole next generation of – a new class of products that actually married or integrated historically disparate technologies. And well we are not prepared here to announce to anything yet. We are working in earnest on new products that really break down some barriers and we will really deliver I think exceptional, operational as well as capital saving to our customers that unify and integrate historically Harmonic and Omneon technologies. I think this is going to be really unique and powerful for us as well as our customers and well, we’re pretty excited about that.”

 

Senior Management & Board Changes:

Separately, the company announced several changes to its senior management team and board of directors. Longtime Harmonic executive Nimrod Ben-Natan was named SVP and GM of the company’s new Edge and Access business unit.  Cisco Systems alum Peter Alexander was named Harmonic’s new SVP and CMO, replacing Geoff Stedman who left the company in April 2012.   Joining from NetApp is Krishnan Padmanabhan who was named SVP of video products. In addition to these executive appointments, Mitzi Reaugh, senior vice president, strategy and business development at Miramax, has joined harmonic’s board of directors.

 

Guidance:

Harmonic said it anticipates net revenue in a range of $130m to $140m for the third quarter of 2012. GAAP gross margins and operating expenses for the third quarter of 2012 are expected to be in the range of 43% to 45% and $61 million to $62 million, respectively. Non-GAAP gross margins and operating expenses for the third quarter of 2012, which will exclude stock-based compensation and the amortization of intangibles, are anticipated to be in the range of 47.5% to 49.5% and $55 million to $56 million, respectively.

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Related Content:

 Press release: Harmonic Announces Second Quarter 2012 Results

 Harmonic Q2 2012 Conference Call Transcript

 Harmonic Announces $25 Million Stock Buyback Program

 Press release: Harmonic Adds Executive and Board Leadership

 Previous Quarter: Harmonic Q1 2012: Weakness in Europe Results in 4% Revenue Decline

 Previous Year: Harmonic Q2 2011 Revenues Falls Short of Estimates

 

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