Dow Jones News Service -- April 9, 1997
Cable Equipment Cos Seen Persevering As 1Q Profits Lag
By Shawn Young
NEW YORK (Dow Jones)--Most cable equipment makers treaded water in the first three months of the year, analysts said, as the nation's largest cable company, Tele-Communications Inc. (TCOMA), continued to restrict spending.
Tele-Communications cut back on spending in October in the face of heavy debt and a loss of customers. The move has muted profits at most cable equipment companies for the quarter that ended March 31.
''The first quarter is going to be kind of a yawner,'' said James Jungjohann, an analyst at A.G. Edwards & Sons Inc. in St. Louis.
However, analysts said spending by cable companies other than TCI has picked up, and TCI will be forced to spend later in the year to stem customer losses and fend off competition from satellite broadcasters.
The companies with the heaviest reliance on orders from Tele-Communications, Antec Corp. (ANTC) and General Instrument Corp. (GIC), will probably have to wait until the second half of the year to see earnings rebound, analysts said.
Despite TCI's retrenchment, some suppliers did reasonably well in the last months of 1996. The distinctions that emerged among the cable equipment makers late last year ''took some of the pall off the industry as a whole,'' said Timothy Savageaux, an analyst at Robertson Stephens & Co.
''TCI is important, but it's not everything,'' Savageaux said.
Companies such as Harmonic Lightwaves Inc. (HLIT) and Scientific-Atlanta Inc. (SFA), which do not rely that heavily on TCI, should report a solid quarter, with revenue at Scientific-Atlanta possibly coming in above expectations, said Nikos Theodosopoulos, an analyst at UBS Securities Inc. in New York.
Scientific-Atlanta, based in Atlanta, has an estimated 20% of the analog cable box market and should benefit from strong orders, increased production capacity and improving gross margins, said Theodosopoulos.
The consensus estimate of 11 brokers surveyed by First Call Inc. is that Scientific-Atlanta will earn 21 cents a share in the fiscal third quarter.
In last year's fiscal third quarter, Scientific-Atlanta earned $11.5 million, or 15 cents a share, on sales of $271.9 million.
Chicago-based General Instrument controls an estimated 60% of the analog cable box market. It also produces semiconductors and is the leading supplier of coaxial cable. It plans to split into three companies this summer.
The consensus estimate of eight brokers surveyed by First Call is that General Instrument will earn 20 cents a share in the first quarter.
In last year's first quarter, General Instrument earned $31.2 million, or 24 cents a diluted share, on sales of $615.8 million.
The smaller cable equipment manufacturers are likely to benefit from cable companies' efforts to expand their services to include voice and data, analysts said.
Harmonic Lightwaves of Sunnyvale, Calif., is a likely beneficiary of upgrades to fiber optic cable. It makes and sells fiber optic transmission systems for cable and broadband services.
Four brokers surveyed by First Call estimated that Harmonic Lightwaves will earn 13 cents a share for the first quarter. In last year's first quarter, Harmonic Lightwaves earned $646,000, or 6 cents a share, on revenue of $11.2 million.
Antec Corp. (ANTC), Rolling Meadows, Ill., makes cable and broadband transmission equipment for cable and telephone companies.
Antec expects to take a $28 million charge in the first quarter related to its merger with TSX Corp. The company said last month that revenue will not grow above the fourth-quarter level of $121.3 million, leading five brokers surveyed by First Call to a consensus earnings estimate of 3 cents a share for the quarter.
TCI made up 20% to 25% of Antec's revenue, said Savageaux, an analyst at Robertson Stephens.
''I'm actually impressed that they can stay profitable at all,'' he said.
In last year's first quarter, Antec earned $2.6 million, or 11 cents a share, on revenue of $162.4 million.
Amphenol Corp. (APH) of Wallingford, Conn., makes cable and electrical fiber-optic connectors. It is in the process of being taken over by investment-firm Kohlberg Kravis Roberts & Co., which will own 75% of the company when the deal closes.
Amphenol is expected to earn 40 cents a share in the first quarter, according to the consensus estimate of four analysts surveyed by First Call.
In last year's first quarter, Amphenol earned $16.9 million, or 36 cents a share, on sales of $194.8 million. |
