Harmonic’s virtualized cable access sales are starting to come to fruition, with the San Jose, Calif.-based technology company announcing a five-year, $55 million contract with a unnamed European operator for its CableOS software product.

The announcement, made during Harmonic’s second-quarter earnings call Monday, comes just a few weeks after Comcast finally game through with an expected big CableOS order—a five-year contract valued at $175 million, with $50 million hitting the software makers books this year.

In total, CableOS is now commercially deployed by 16 cable operators, CEO Patrick Harshman told investors, “with 780,000 connected cable modems at the end of the second quarter, which is up 16% sequentially from the number we shared with you at the end of the first quarter.”

Related: Harmonic: Volume Deployment of CableOS is on the Way

CommScope’s newly acquired Arris unit leads the cable access network technology business but Harmonic is the leading insurgent, selling a software the virtualizes Converged Cable Access Platform functions traditionally performed by expensive proprietary hardware, such as cable modem termination system (CMTS).

“Today, we've made 35 unique patent filings,” Harshman declared. "Big picture is increasingly clear that the cable access market is beginning to make a major pivot towards these virtualized CMTS distributed access architectures. It's also clear that this is not just a U.S. phenomenon. We're seeing the trend beginning to unfold across all regions, driven by those operators who are most aggressive about strengthening their competitive position.

“Our pioneering innovations and strategic customer engagements have put us in a unique position to take advantage of this global wave,” Harshman added. “And let me be clear, Harmonic is determined to take advantage of this opportunity not only by leading technologically, but to be the global market share leader. We're doing this by leveraging our position and as the first cloud native CMTS supplier, our associated with unique solution for new distributed access architectures, our strong intellectual property position and foundational wins within our several of the world's largest and most influential cable operators.”

While Harmonic planted its virtualized flag over the cable access business, it reported GAAP revenue of $84.9 million for the second quarter, down 14.4% year over year.

Continued infiltration of CableOS will certainly help matters going forward. The company’s software (SaaS) revenue came in at $30.4 million for Q2, representing $35.9% of total revenue. SaaS was just 30.9% of total revenue a year ago. 

Avid said its patent infringement case against Harmonic is set to proceed to trial.

In a case that got underway in 2011 in the United States District Court for the District of Delaware, Avid said it is seeking a “multimillion-dollar damages” over allegations that Harmonic is infringing on two patents.

Avid said the case centers on Harmonic’s MediaGrid storage system and Avid’s U.S. Patent Nos. 6,760,808 and 7,487,309 (Computer system and process for transferring multiple high bandwidth streams of data between multiple storage units and multiple applications in a scalable and reliable manner), and the Harmonic’s Spectrum media server system and Avid’s U.S. Patent No. 5,495,291 (Decompression system for compressed video data for providing uninterrupted decompressed video data output).

Following the latest rulings by the U.S. Court of Appeals for the Federal Circuit in Washington, D.C. and the United States Patent and Trademark Office, Avid said it plans to proceed to trial against Harmonic.

Avid said its case of infringement against Harmonic’s Spectrum products is scheduled for trial in November 2017, and noted that the court ordered a new trial in the MediaGrid case in 2016.

Harmonic sought to have the USPTO cancel the patent claims in Avid’s ‘808 and ‘309 Patents, but on May 12, 2017, the USPTO upheld the claims of Avid’s 309 Patent, but found the claims of the ‘808 Patent unpatentable (Avid plans to appeal that decision).  With the ‘309 Patent confirmed as patentable, Avid said its infringement case against Harmonic and its MediaGrid system is expected to proceed to the new trial ordered by the Federal Circuit.

“Based on expert testimony, Avid expects its claim against Harmonic could result in up to $35 million in damages through 2013,” Avid said.

Harmonic, which outlined details of Avid’s legal actions in May via this 8-K filing, has been asked for further comment.

Update:Harmonic said it is not commenting about the case beyond what's stated in its SEC filings. 

Shares in video technology specialist dropped more than 13% Monday after the company announced reduced guidance for the second quarter as it faces a “global slowdown” of its video business as larger customers start to plan for the company’s more “virtualized approaches” for video delivery.

The company said net revenue for the second quarter is now expected to be in the range of $108 million to $100 million, versus previous guidance of $113 million to $123 million. Harmonic also cut its expected GAAP gross margin – to a range of 44.5% to 46.5%, versus original guidance of 49.5% to 50.5%.

"We are disappointed in our second quarter results," Harmonic president and CEO Patrick Harshman said, in a statement. "We saw a global slowdown in our video business as several of our larger customers began planning for our new virtualized approaches for delivering video services. This video slowdown was particularly pronounced among EMEA and North American Broadcast and Media customers, where we also saw several anticipated projects delayed and growing consideration of the new Ultra HD format and new HEVC compression technology."

He said Harmonic’s North American cable business “performed better,” citing strong demand for Harmonic’s cable edge products, including the NSG Pro, a product that is starting out as a dense edge QAM, but will evolve to become a fully-integrated Converged Cable Access Platform (CCAP) that also integrates upstream capabilities and cable modem termination system (CMTS) functionalities. Harmonic is also developing the NSG Exo, a “distributed” form of a CCAP, that will do the opposite – start off as a CMTS, then add edge QAM capabilities later.

“Looking ahead, while the transitioning video market is turbulent and we are consequently cautious about our near-term results, the growing signs of coming video technology investment cycles and our cable customers' continuing positive response to our CCAP products are encouraging. We therefore remain positioned and focused on achieving the company's overarching objectives for driving sustainable top and bottom line growth,” Harshman said.

The shift to virtualization should be benefit Harmonic’s new VOS encoding platform in the long term, but “the transition requires extensive planning from carriers and likely leads to softness in the immediate term,” Raymond James analyst Simon Leopold said in a research note. “Additionally, our checks indicate that Ericsson's encoder products have gained traction at North American cable TV operators, and this could add to the pressure and present Harmonic's video processing business with a multi-front challenge.”

He maintained his “Underperform” rating on Harmonic and his target price of $6.38.

Harmonic shares closed Monday at $6.15 each, down 98 cents (13.74%) for the day.