Harmonic (HLIT) Project Hunt Update
HLIT recently reported 1Q 2000 results. QOQ net revenue increased 108% to $62.9 million, while QOQ net income increased 591% to $9.3 million. QOQ gross margins expanded from 41% to 47% and net margins from 4.5% to 14.8%. Sequentially, revenues were slightly down, gross margins were slightly up, and net margins were slightly down. Seasonally, this is HLIT's weakest quarter. The results were in line with expectations, although the EPS of $0.28 exceeded analyst expectations by several cents. The company had previously stated that shareholders should expect a flat or slightly down quarter in terms of revenues, and to not expect net margins to expand as the company increases R&D (which now stands at 10% of revenues) and moves to a higher tax bracket.
Conference Call Highlights
The CC is available at harmonicinc.com by clicking on Investor Relations.
AT&T remains the company's largest customer. Charter recently announced they would use HLIT products to upgrade their recently acquired systems.
The CFO stated at least two times that the results reflect continued demand by MSOs to upgrade their systems and HLIT's improved market share. He didn't specify in what ways or how much their market share improved, but this is good news for the company to be expanding market share while in the midst of a tornado.
The improved margins were attributable to improved production efficiencies and lower component costs. The product mix didn't help.
Revenues from the company's digital product line now stand at 11%, or $6.9 million. This is up from $2.5 million last quarter, a sequential increase of 176%. This is phenomenal growth for this product line. The CFO stated the majority of these revenues are to satellite broadband operators. This is an important bowling pin since it represents a distinctly different customer base than the cable MSOs that have accounted for the majority of the company's revenues.
The company's merger with C-Cube's DiviCom division is expected to close in early May. This is about one month later than originally anticipated. The CFO is reporting the combined company will have very good synergies in terms of product integration and customer base. DiviCom recently announced its second major win to install digital headend equipment in China: biz.yahoo.com
Here's an updated look at the financials.
Harmonic (HLIT) 3/31/99 6/30/99 9/30/99 12/31/99 3/31/00
Net Rev $30,263 $37,902 $52,624 $63,286 $62,863
Cost of Sales $17,852 $21,946 $29,528 $34,144 $33,067
Gross Profit $12,411 $15,956 $23,096 $29,142 $29,796
Op. Expense $10,644 $11,527 $13,771 $15,646 $15,873
Op. Income $1,767 $4,429 $9,325 $13,496 $13,923
Other Income $32 $711 $931 $882 $1,121
Income before Taxes $1,799 $5,140 $10,256 $14,378 $15,044
Income Tax $450 $1,285 $2,564 $3,594 $5,717
Net Income $1,349 $3,855 $7,692 $10,784 $9,327
Outstanding Shares 26,692 31,396 32,836 33,074 33,391
EPS (diluted) $0.05 $0.12 $0.23 $0.33 $0.28
Gross Margin 41.0% 42.1% 43.9% 46.0% 47.4%
Net Margin 4.5% 10.2% 14.6% 17.0% 14.8%
YOY Revenue Growth 99.5% 119.5% 121.3%
QOQ Rev. Growth 86.8% 108.6% 135.1% 133.6% 107.7%
Seq. Rev. Growth 11.7% 25.2% 38.8% 20.3% -0.7%
The Tornado
HLIT's QOQ revenue growth has exceeded 100% for each of the past four quarters, although growth has slowed slightly in the past two quarters. YOY revenue growth now stands at 121%.
@Home has reported the following number of broadband subscribers over the past six quarters: 331,000, 460,000, 620,000, 840,000, 1,115,000, and 1,500,000. These numbers represent sequential growth rates of 39%, 35%, 36%, 37%, and 30% over this period, and a QOQ increase of 226%.
RoadRunner recently reported 730,000 broadband subscribers, for a sequential increase of 36%. And MediaOne reported 220,000 broadband subscribers, for a sequential increase of 27%.
Summary
The broadband tornado is continuing. HLIT is benefiting from the tornado and has expanded market share. The satellite broadband market appears to be taking off, and the company just announced that Charter has committed to use HLIT products in a major upgrade of their systems. HLIT is still likely to be a Prince in the broadband equipment space, although the reported expansion of market share, the rapid increase in satellite equipment sales, and the DiviCom merger means the company's chances of becoming a King have improved. |
