Cable-Equipment Suppliers To Post Mixed 3rd-Quarter Results
Dow Jones Online News, Monday, October 05, 1998 at 19:10
By Craig Karmin, Staff Reporter
NEW YORK -(Dow Jones)- Strong domestic demand for digital set-top
boxes and cable system upgrades gave a boost to cable-equipment
suppliers in the third quarter, analysts said Monday. But for some
manufacturers, those gains were severely mitigated by continuing
weakness overseas.
"The outlook for the industry is better than it's been for the past
few years because the domestic scene is very positive," said Nikos
Theodosopoulos, an analyst with Warburg Dillon Read. "But
internationally it's a mixed bag."
Indeed, that geographical dichotomy was underscored last week when
two of the industry's leading suppliers preannounced earnings.
General Instrument Corp. (GIC), which derives only about 12% of
revenue from international sales, said it expects to report
third-quarter net income of 21 cents to 22 cents a share, which would
beat a First Call Corp. mean estimate of 19 cents.
At the same time, Scientific-Atlanta Inc. (SFA) announced that
weakness in international sales will lead to net income for its fiscal
first quarter of only 2 cents to 5 cents a share, well below First Call
expectations of 22 cents a share prior to the company's Oct. 1 lowered
earnings outlook.
In the U.S., analysts say cable-equipment makers are beginning to
reap financial benefits as cable operators modernize their networks by
adding new digital systems, cable modems and greater bandwidth.
These upgrades are being spurred in large part by AT&T Corp.'s (T)
agreement to acquire cable giant Tele-Communications Inc. (TCOMA) and
invest $4.4 billion toward new applications like telephone service over
cable.
"The shift from the old analog systems to digital has been a big
driver in this industry, but the new priority is on cable telephony,"
said Steven Levy, an analyst at Lehman Brothers. "It had been put on the
back burner until AT&T acquired TCI."
In fact, Tele-Communications is in the process of buying about 12
million digital set-top boxes from General Instrument.
Levy estimates that General Instrument shipped nearly 500,000 of
these boxes in the third quarter, up from 420,000 in the second quarter.
Additionally, Credit Suisse First Boston Corp. analyst James Parmelee
projects the company posted shipments of 120,000 direct broadcast
satellite set-top converters to Primestar, a closely held
satellite-to-home broadcaster.
General Instrument said it expects revenue of $518 million for the
third quarter, compared with $465 million in the third quarter of 1997
and $489 million for the second quarter of 1998.
A revitalized Tele-Communications has also been good news for Antec
Corp. (ANTC), a Rolling Meadow, Ill., maker of fiber-optic cable and
laser transmitters and receivers.
Antec, which is 20% owned by Tele-Communications, is expected to
report net income of 14 cents a share for the third quarter, according
to First Call estimates.
Jim Jungjohann, an analyst with CIBC Oppenheimer Corp., estimates
earnings of 13 cents, but said that the company posted impressive
numbers for the period.
He expects Antec to report third-quarter revenue of $148 million,
compared with $120.4 million in the year-ago third quarter. Sales to
Tele-Communications should account for $34 million of that quarterly
revenue.
"This company is a leading contender for AT&T cable telephony
business in the future," Jungjohann said.
Meanwhile, Scientific-Atlanta revealed last week that international
sales for its fiscal first quarter fell 54% to about $54 million, or 21%
of total sales, from $116 million, or 40% of total sales, in the
year-ago quarter.
Company officials attributed the decline in overseas business
primarily to weakness in satellite and transmission sales. Most notably,
revenue in the Asia Pacific region fell $38 million from a year ago.
"The quarter ending in December still looks weak, then it should
start to pick up," said Kenneth Leon, an analyst with ABN Amro Inc.
Still, on the domestic side Scientific-Atlanta indicated positive
results for its fiscal first quarter. U.S. sales were up about $24
million, or 13%, from the year-ago period, company officials said.
Harmonic Lightwaves Inc. (HLIT), a Sunnyvale, Calif., maker of
fiber-optic transmission systems, was also punished for its
international exposure, which accounted for 37% of third-quarter
revenue, according to Warburg Dillon Read's Theodosopoulos. That's down
from 42% of revenue in the second quarter.
"They should benefit from the new products they're rolling out, but
weakness overseas and new investments continue to dampen profits,"
Theodosopoulos said.
He estimates that third-quarter revenue will be $21.7 million,
resulting in a loss of 7 cents a share. That compares to revenue of
$17.5 million, but a profit of 3 cents a share in the year-ago period.
Theodosopoulos said that the company's operating margins have
declined from the previous year because it has been spending more money
on research and development, as well as sales and marketing in an effort
to expand the company's profile domestically and abroad.
Harmonic Lightwave's new products, such as digital head-end equipment
and optical receivers, have also produced lower gross margins, he added.
-Craig Karmin; 201-938-2020; craig.karmin@cor.dowjones.com
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