<A> Cable-Equipment 4Q Shows Cos Gearing Up For Next Year
By Brian Steinberg
NEW YORK (Dow Jones)--Cable-equipment firms, which for months have shown a flattened earnings trend, may soon have reason to cheer - but the current quarter will not provide it.
Yes, the nation's large cable operators appear interested in upgrading their systems, and a new wave of business may be coming. But it has yet to arrive, and in its absence analysts are forecasting that cable-equipment companies will show results much like those of the last several periods.
"I don't think people are going to focus that much on the quarter," said CIBC Oppenheimer analyst Jim Jungjohann. "because calendar '98 is going to be a better year. Everything points to 1998."
For months now, cable-equipment makers have languished while awaiting projected system upgrades from Tele-Communications Inc.'s TCI Group (TCOMA, TCOMB), perhaps the largest U.S. cable operator. Their business has also been hurt by the swapping of individual systems among large cable operators looking to consolidate their presence in a particular region. When a system is about to be sold, the seller usually does little in the way of fix-ups.
"You're not going to wallpaper the kitchen if you're going to sell the house," remarked analyst Jungjohann.
Despite much talk about the end of system swaps and TCI's plans - as well as infusions both rumored and real from Microsoft Corp. (MSFT) into entities that include Comcast Corp (CMCSA), TCI, and U S West's Media One Group (UMG) - there has been little action.
UBS Securities Inc. analyst Nikos Theodosopoulos said TCI's expected upgrade has yet to begin in earnest. "It really hasn't started yet," he said. "I see it really as a '98 phenomenon."
What's more, noted Theodosopoulos, "Asian markets have negatively impacted the (sector) outlook, more so than in the past because of the currency issues."
The combination of the TCI wait and Asian market woes will make the cable-equipment fourth quarter "another tough one," he said.
Among the bigger firms, NextLevel Systems Inc. (NLV) - which will return to its original name, General Instrument Corp., soon after the new year - is expected to post earnings of 10 cents a share for the fourth quarter, according to the mean forecast of 15 analysts surveyed by First Call Inc.
In the year-ago period, the company reported pro-forma earnings of 15 cents a share on sales of $506.6 million. At that time, NextLevel had yet to split off from the rest of the original General Instrument.
Scientific-Atlanta Inc. (SFA), meanwhile, is seen earning 24 cents a share, against 18 cents a share in the year-ago period, according to 15 analysts.
First call asked five analysts about Antec Corp. (ANTC), of Rolling Meadows, Ill.: The company is expected to post a loss of one cent a share. A year ago, Antec, which is heavily reliant on TCI, reported earnings of 8 cents a share on sales of $121.2 million.
A First Call survey of four analysts found that Harmonic Lightwaves Inc. (HLIT), of Sunnyvale, Calif, is expected to report earnings of 6 cents a share, down from 21 cents on sales of $19.5 million in the year-ago period.
By contrast, Amphenol Corp. (APH) of Wallingford, Conn., is seen having a better quarter than it did a year ago.
A First Call survey of five analysts determined that the company, which specializes in making fiber-optic connectors, is expected to post earnings of 52 cents a share, 40% more than the year-earlier 37 cents. Analysts who follow Amphenol have suggested the connector business has proven a profitable niche for the company, which also sells its wares to aerospace firms.
Analysts said they are firmly focused on next year.
"Cable operators are a much healthier bunch," said Jungjohann of the equipment-makers' primary customer base. "Subscriber growth is increasing. Cash flows are increasing. (The) core customers are much healthier than they used to be."
"Dow Jones News Service"
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