Strong 2Q Seen For Cable-Equip Makers As Clients Upgrade
By JANET WHITMAN
NEW YORK -- Despite the dismal second-quarter results preannounced by Harmonic Inc. (HLIT), other cable equipment manufacturers are expected to report another strong quarter.
Harmonic's woes are unique, analysts say, and other cable equipment makers should again benefit from brisk digital set-top box sales and the race to modernize cable systems for next-generation services.
But Harmonic's shortfall aside, "everything else is humming along great," said UBS Warburg analyst Anton Wahlman.
Indeed, analysts expect Scientific-Atlanta Inc. (SFA), Antec Corp. (ANTC), CommScope Inc. (CTV), C-Cor.net Corp., and Terayon Communication Systems Inc. (TERN) to easily meet or exceed earnings estimates for the quarter.
"Cable operators are still spending aggressively to deploy digital cable," said George Hunt, an analyst with Wachovia Securities Inc. "As long as that continues, cable equipment companies will have another great couple of years."
That trend is especially likely to remain in place now that digital broadcast satellite operators such as Hughes Electronics Corp.'s (GMH) DirecTV Inc. unit and Echostar Communications Corp. (DISH) have emerged as formidable competitors to cable providers.
"That's forcing domestic (cable operators) to step up their upgrades even more," which translates into more demand for cable equipment, said James Jungjohann, an analyst with CIBC World Markets Corp.
...The strong sales of digital set-top boxes, which enable standard televisions to get Internet access, cable telephony, and interactive video services, bode well for other cable-equipment suppliers because of the pull-through demand new set-top boxes create for their products as customers upgrade from analog to digital.
"You've got to build it before you can send it," said Jungjohann of CIBC. "You don't want to drive a brand new Ferrari on a gravel road. You've got to have the infrastructure in place to offer all of these sexy services."
Antec Seen Benefiting From AT&T Telephony Rollout
Wall Street expects cable equipment supplier and developer Antec to post quarterly earnings of 27 cents a share on revenue of roughly $270 million, compared with 21 cents a share on revenue of $196 million a year ago.
As the largest supplier of cable telephony equipment to AT&T Corp., Antec's success hinges in large part on AT&T's ambitious plan to secure between 400,000 and 500,000 cable telephony customers by year's end, up from 75,000 at the end of May.
"Antec's sales to AT&T were 44% of their total revenue in the March quarter," said Harris of Josepthal. "It's on the high side, but on the other hand, cable telephony is a top priority for AT&T. We would anticipate that they will have about 100,000 (cable telephony customers) by the end of June."
..Analysts expect C-Cor.net, a designer and manufacturer of network distribution products for two-way hybrid fiber coaxial networks, to report quarterly earnings of 14 cents a share, up from 3 cents a share for the year-ago period, according to First Call/Thomson Financial. Its revenue for the quarter is projected by analysts at $70 million, versus $67 million for the same period last year.
"We're looking for good results," said Harris of Josepthal. "There appears to be increasing demand for fiber optic products from major customers such as Adelphia and AT&T."
International Demand Poised To Take Off
Demand for cable equipment has surged over the past couple of years, bolstered by the billions of dollars in capital investment pumped into the cable industry by the likes of AT&T and Time Warner Inc. (TWX).
"The big catalyst is really the building of the big two-way network that has the bandwidth capacity to do all of these interactive services," said Jungjohann.
While the domestic upgrade is expected to continue, international demand is poised to take over where domestic demand leaves off.
"International could be a bright spot going forward," said Harris at Josepthal. "I'm not looking for a breakout in the June quarter, but we may be beginning to see a move up in orders that could lead to some significant revenue generation in 2001 and beyond."
Jungjohann of CIBC said that the international market for cable equipment could be six times the size of the U.S. market, with strong demand expected in Europe, Asia, and Latin America.
"We're going to be hearing a lot about the German upgrade cycle," he said.
Jim |
