Cable Vendors Watching Budget Decisions, Officials Say
Some cable vendors face an uncertain quarter as customers allocate budgets among services such as digital simulcasting and set top boxes, said executives of equipment makers we spoke with. Outlays for some products, such as digital set tops, are “mature,” while VoD and simulcasting spending could contract near term as cable operators use existing inventory, officials said. The comments followed last week’s release of financial results by vendors of all sizes, from Motorola to Concurrent Computer. Shares of other firms, including C- COR and Harmonic, fell as investors found sequential growth and company forecasts disappointing.
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Harmonic took a hard hit Fri., losing 18% of its value after the video encoder maker said 4th-quarter sales will be flat sequentially. But the firm is in good company, with similar forecasts from C-COR, whose stock also fell, and Motorola’s Connected Home business. Motorola’s set top division, which forecast flat 4th- quarter sales from a year earlier, has “a certain amount of uncertainty” as cable customers set budgets, said Mark DePietro, vp-strategy for the division: “You have what I would call a relatively mature market at this point, where there is quite a bit of digital penetration.” Still, he said he hopes consumer purchases of PVRs and HDTV sets will bolster the company’s prospects.
“We know they've been scaling back generally in capital expenditures,” said Harmonic CEO Anthony Ley. “Cable is probably now in a fairly uniform period for the next few quarters” after “huge” outlays several years ago, he said. Harmonic has seen growth from introduction of digital simulcasting by companies including Comcast, he said. But “some of the others are still making up their minds of where to go, and these are quite complicated things to get into. Some of it is just timing - they need a fair amount of time to make up their minds, who to go with and what to build.” Cable sales may be “uniform” for the next few quarters, while DBS spending will be spurred by the shift to the MPEG 4 video format, he said: “Telecom we expect to be moving more quickly, but it’s had a number of delays. It’s quite complicated for a telco to bring you TV.”
Concurrent is in “a little bit of a slow time,” said Mktg. Dir. Tim Dodge: “There’s been significant deployment of VoD streams over the past few years, and we're still waiting for the capacity that’s been deployed to be used.” One silver lining is higher demand for monitoring cable subscribers’ VoD usage, said Dodge. Scientific-Atlanta, whose quarterly sales were below analyst forecasts (CD Oct 21 p11), shrugged off the letdown. It “was not unusual if you look at recent years,” said Tom Robey, vp-investor relations. “Cable operators are trying to wrap their minds around how much a threat the phone companies might be in 2006” as Verizon expands pay TV sales, with SBC set to follow. At the same time, Robey said, cable firms are “also trying to evaluate the competitive environment versus satellite.”