For the fast-changing cable access technology business, it was not an easy first quarter. Revenue was sluggish for every major vendor, as operators held off on orders while mulling big moves into new technologies like CCAP virtualization and Distributed Access Architecture.
Nowhere was the anxiety more thick than in the San Jose, California, headquarters of Harmonic. It had been nearly three years since Comcast signed a warrant agreement with Harmonic, based on its virtual Converged Cable Access Platform software product, CableOS. Harmonic revenue was down 11.1% in Q1, and Comcast was still only in trials with CableOS. Could the operator be kicking the tires on another vCCAP product that Harmonic didn’t even know about, as one investment analyst hinted?
All that speculation has been put to rest with a Harmonic 8-K filing to the SEC revealing a four-year, $175 million order from Comcast for CableOS. Under the agreement, the No. 1 U.S. cable operator will pay Harmonic $50 million in 2019, the first year of the deal.
The $1.5 billion global cable access technology market has long been dominated by Arris (now owned by CommScope) and Cisco Systems. But the cable industry is now looking to virtualize expensive, power-hungry, proprietary hardware appliances, replacing them with off-the-shelf x86 servers that — using products like CableOS — virtualize network functions in the form of discrete, software-based microservices.
Incumbents Arris, Cisco and Casa Systems are fast moving to virtualization themselves, but insurgents like Harmonic and Nokia are looking to seize on the disruption to grab market share.
“Clear progress here for Harmonic,” tweeted Dell’Oro Group analyst Jeff Heynen. “No matter how you slice it, that’s $175 million from Comcast over the next four years that isn’t going to Arris and Cisco.”
The Comcast deal was clearly good news for Harmonic, which saw its stock price shoot up nearly 5% in the immediate aftermath of the 8-K filing.
And it wasn’t bad news for Comcast. In 2016, Comcast secured the right to purchase 7.83 million shares of Harmonic at an exercise price of $4.76 a share—a nice price, considering the tech vendor is currently trading at around $7.50 a share. Harmonic deemed all of Comcast’s warrant shares fully vested and exercisable after the deal.
Does the agreement portend an immediate uptick in cable access revenues, which were collectively down 38% in the first quarter, according to Dell’Oro? Maybe. Maybe not.
The shift to virtualized CCAP is occurring as operators simultaneously mull shifts to network designs that decentralize architecture (aka DAA). Full Duplex DOCSIS and other so-called 10G initiative are also being considered.
According to Heynen, operators continue to “push off” new capacity purchases while they determine how to move forward with distributed access architectures.
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