****Must Read from Forbes about HLIT***************
forbes.com
Today Harmonic's METROLink DWDM system is being used by cable companies like AT&T Broadband & Internet Services (BIS), Comcast (nasdaq: CMCSK), Cox Communications (nyse: COX) and Time Warner (nyse: TWX) to upgrade their networks. Other customers include RCN (nyse: RCN), Rogers Communications (nyse: RG), CableTel (nasdaq: TTV), TeleWest (nasdaq: TWSTY) and PTT, a major Chinese operator.
Harmonic's most important relationship, though, is with AT&T. One of the company's biggest clients had been Tele-Communications Inc. (TCI), which was the nation's second largest cable operator until AT&T bought it for $45 billion earlier this year. Today, pending the completion of its $54 billion acquisition of cable operator MediaOne (nyse: UMG), AT&T will be the largest cable operator in the U.S., passing more than 16 million homes, or approximately 17% of the total market.
But the problem facing AT&T is that much of TCI's network is rapidly aging and unable to handle the bandwidth for interactive broadband. To upgrade its system, AT&T has turned to TCI's old supplier, Harmonic. According to Tony Ley, AT&T is his company's biggest client, accounting for 22% of its overall business.
"We like Harmonics for two reasons," says Mike Carey of BlackRock Micro Cap Equity Investment funds (BMEAX, BRMBX), one of the largest holders of Harmonic stock. "First is the relationship with AT&T, which is significant and shows no signs of deteriorating. The other is that international markets are strengthening and Harmonics does 40% of its business overseas. We think earnings are poised to really grow. They have good management. This is a company with the wind at their back."
"Harmonic still has lots of business left to do," he says. "The next phase of the current systems upgrade is to increase node sizes. Harmonic has developed a unique technology to allow fitting optical nodes with return transmitter modules employing DWDM. The more nodes a network has, the more bandwidth capacity it has. By shrinking the size of the nodes, the cable companies can handle more and more traffic."
As Ley puts it: "Our DWDM-from-the-node technology is the next logical extension of DWDM. Today there are typically 1,000 customers on a coax node. AT&T is talking about scaling that down to 50. That's going to take awhile."
But Tony Ley remains confident about his company's future. "We are continuing to invest heavily and expand our fiber optic core business," he says. "We are also rolling out new product lines and are focusing on new applications like video conferencing. It's true that there's a lot of competition out there, but no one's doing what we're doing. I haven't seen anyone in my patch yet. We have the lead in the DWDM space, and everyone's going to have to play catch up with us."
Kick some ass Tony, I have faith in you.
Tim |
