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Harmonic Cuts Q2 Guidance

Harmonic shares tumbled Friday (July 14) after the company announced it had cut financial guidance for Q2 2017 amid an ongoing transition by customers to software subscription models and cloud-based video infrastructure.

Harmonic said it expects Q2 sales of $80 million to $82 million, down from $95 million to $103 million, and a non-GAAP loss per share of 21 cents to 19 cents.

"Market demand for video infrastructure delivered through software subscription and cloud services is accelerating," Patrick Harshman, Harmonic’s president and CEO, said in a statement.

He said that while an improvement in OTT software-as-a-service activity reduced revenue and profitability in the period, Harmonic also believes this will help to “establish a trajectory for more predictable future financial performance in our Video segment.”

With more acceleration coming way of Harmonic’s software business, the company has also started reorg efforts that aim to align the company’s operating expenses with transitioning demand to its video OTT SaaS and CableOS products, Harshman added.

CableOS is Harmonic’s virtual Converged Cable Access Platform that will run on off-the-shelf hardware. Last fall, Harmonic announced a warrant agreement with Comcast based on sales to the MSO and deployment milestones involving the CableOS product.

RELATED: Harmonic Starts Making Money on its Virtual CCAP

Raymond James analyst Simon Leopold maintained his Underperform rating on Harmonic shares following the announcement.

“Management attributed the miss to the continued transition towards software-based video encoding solutions, which could expand margin and profitability longer term, but will likely continue to impact the top line in the immediate term,” Leopold explained in a research note.

Harmonic is scheduled to release Q2 results following market close on Monday, July 31.