Dow Jones Newswires -- July 14, 1997
Cable Equipment Suppliers Look Beyond Core Businesses
By BRIAN STEINBERG
Dow Jones Newswires
NEW YORK -- No one in the cable-equipment business is yelling "Abandon ship!" but certain
companies are testing new waters.
"There hasn't been that much growth in the cable-equipment business over the past couple of
years," said UBS Securities Inc. analyst Scott Heritage. "That's why these companies are
diversifying - or looking to - because I think they see that cable equipment is not going to be a
be-all and end-all market."
The move toward new sidelines seems only natural given that giant cable provider
Tele-Communications Inc. (TCOMA), which holds 25% of the nation's cable subscribers, has
significantly reduced spending for the last few quarters. While TCI is expected to open its vaults
toward the end of this year, companies like Antec Corp. (ANTC) and Ortel Corp. (ORTL) have
been prompted to seek alternative sources of revenue.
At Antec, for example, officials came up with a plan three years ago to help alleviate their
company's dependence on TCI, which historically has accounted for 20% of the Rolling Hills, Ill.,
company's revenue. In the first quarter, however, Antec derived less than $5 million from TCI,
down from $47 million a year ago, spokesman Jim Bauer said. That represented about 4% of total
revenues of $120 million, compared with 25.7% of $183.1 million in first quarter 1996.
"That's a pretty big hole in your revenue stream, and that's why we're looking forward to them
opening their revenue stream," Bauer said.
Antec's dependence on TCI sparked the company to reconfigure its markets, said spokesman
Bauer, who termed the TCI connection "both a blessing and a curse."
TCI "is someone you have to do business with if you are an equipment supplier," he said. "We saw
that we both needed to expand our markets and the customers in our markets."
Just three or four years ago, Antec's top 10 customers were all domestic cable operations, he said.
Today, such companies occupy only five of the top 10 slots.
Antec began targeting regional Baby Bells and international markets about three years ago, Bauer
said. The plan "has reduced our dependence over time, not necessarily in raw dollars, but (in)
percentage sales," he said.
Nonetheless, a First Call Inc. estimate of 13 analysts expects Antec to post earnings of 7 cents a
share for the second quarter, down from 13 cents a year earlier.
Antec is the only major cable-equipment company expected to post such a decline.
Meanwhile, Ortel executives have crafted a foray into wireless technology that at least one analyst
following the company - James E. Jungjohann of A.G. Edwards & Sons Inc. - believes bears
closer scrutiny.
"I tend to believe more and more of the cable-equipment providers are looking to diversify into
telecommunications," he said.
Ortel is putting some emphasis on repeaters, the 50-pound, suitcase-sized boxes used to extend
the coverage of a personal communications service or cellular base station. Operators often find the
repeaters small enough to use in tunnels or canyons, where bigger and bulkier base stations can not
be placed.
"(PCS operators) are just really starting to get to the point where they can start to deploy
repeaters, in the suburban and rural areas," said Hal Zarem, business manager for Ortel's wireless
division. "They extend base station coverage by use of repeaters and reduce roll-out costs that
way,"
Typically, the Alhambra, Calif., company derives 75% of its revenues from more traditional
broadband business, but it also focuses on "other emerging areas," said Bob Jordan, vice president,
broadband communications.
With repeaters being installed and operated in China, Singapore, and Malaysia, Ortel sees its
wireless division "as an important future component to the business," said Zarem.
Despite the company's optimistic outlook, however, analysts warn that the market for repeaters
remains untested.
"I think they're really looking to the U.S. market and the PCS networks that are being built out,"
said UBS' Heritage. "But it hasn't happened yet, and it may never happen."
Still, A.G. Edwards' Jungjohann believes Ortel and companies like it must reach into other,
non-broadband markets. The cable industry, he said, "has debt-laden balanced sheets. They're not
known for being the most predictable buyers of equipment."
In June, Ortel said revenues from wireless and other products would not offset continued weakness
in the broadband sector during its first fiscal quarter, which ends July 31. Still, the company said it
expected significant research and development in 1997 to help results in 1998.
Officials at both Ortel and Antec say they are sticking with what they hope will once again be a
robust cable industry.
With TCI expected to spend again and with Bill Gates' Microsoft Corp. (MSFT) investing in
Comcast Corp. (CMCSA), cable-equipment executives believe the industry could reemerge.
Cable providers "are starting to implement their strategies. They're turning to the infrastructure,
improving those transmission networks," said Scientific-Atlanta Inc. (SFA) spokesman Bill Brobst.
Analysts expect the company to report a strong fiscal fourth quarter, which ended June 30.
"Our view is that the cable industry will be the major providers of interactive digital service," said
Ortel's Jordan. "To do that, they have to upgrade their networks."
Michael W. Harris, president of Kinetic Strategies Inc., a Phoenix market research firm that covers
cable operators and equipment vendors, agreed. "It certainly never hurts to diversify, but I think
TCI has given the cable industry in general a bad name," he said. "Other operators don't have the
severe debt position, and they've been making greater investments to date in upgrading."
But UBS' Heritage remains down on the cable equipment sector.
"I think these companies are decent companies, (but) they are a reflection of the industry that they
sell to.," he said. "Companies like TCI, Cablevision (Systems Corp.) (CVC) ... I'm not real
impressed with these cable operations. They're up to their necks in debt. They're just not well run.
They don't have any money, and that's unfortunate." |
