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    Harmonic Inc (HLIT)

    Q3 2024 Earnings Summary

    Reported on Feb 14, 2025 (After Market Close)
    Pre-Earnings Price$14.82Last close (Oct 28, 2024)
    Post-Earnings Price$10.93Open (Oct 29, 2024)
    Price Change
    $-3.89(-26.25%)

    What went well

    • Harmonic's transition to Unified DOCSIS 4.0 technology is expected to strengthen their market leadership and provide opportunities to gain market share at the node level, positively impacting mid to long-term growth.
    • The company is experiencing momentum with new Broadband customers, having secured business with 7 new customers in Q3, demonstrating increasing demand and market share growth.
    • The Video segment has returned to profitability with over 10% adjusted EBITDA margin, focusing on Tier 1 SaaS streaming and large-scale appliance opportunities, which are expected to contribute to revenue growth in 2025 and beyond. ,

    What went wrong

    • Potential delays in Broadband revenue growth in 2025 due to customers evaluating the Unified DOCSIS 4.0 transition, leading to timing delays in deployment plans. Management acknowledged that previous expectations of accelerating Broadband growth into FY '25 are no longer valid, and they are cautious about the outlook for next year.
    • Increased customer concentration risk, with over 80% of Broadband revenue coming from the top two customers, Comcast and Charter. This concentration suggests that growth is highly dependent on a few customers, and revenue from other customers may have declined sequentially.
    • Ecosystem challenges and dependency on key components, specifically the reliance on amplifiers for deploying Full Duplex DOCSIS (FDX) nodes. This dependency may limit Harmonic's ability to ship and deploy products, potentially impacting revenue in 2025.

    Q&A Summary

    1. 2025 Broadband Growth Outlook
      Q: Will Broadband revenues decline in 2025?
      A: Management acknowledges that prior expectations for accelerating Broadband growth in 2025 no longer apply due to the Unified transition and changing customer demands. They are cautious about next year's growth and unable to provide specific guidance but expect total company EPS in 2025 to be above 2024 levels, even in conservative scenarios.

    2. Unified Technology Delays
      Q: Are delays due to customers evaluating Unified?
      A: Yes, the transition to Unified technology is causing delays as customers reevaluate deployment plans. This affects both top customers and others, as they assess the economics and technology of Unified, leading to potential timing delays in deployments.

    3. Q4 Broadband Gross Margins
      Q: Will high Broadband margins continue after Q4?
      A: The significant uptick in Broadband gross margins in Q4 is due to product mix, specifically cOS driving margins into the 50s. This uptick is unique to Q4, and margins are expected to return to prior levels thereafter.

    4. Customer Concentration Trends
      Q: Is customer concentration increasing in Broadband?
      A: While the top two customers contributed over 80% in the current quarter as expected , management anticipates the concentration to decrease in Q4 and beyond as non-top-2 customers grow.

    5. Ecosystem Dependency on Amplifiers
      Q: What are the ecosystem challenges mentioned?
      A: The company is dependent on the availability and maturity of FDX amplifiers for deploying full duplex nodes beyond a certain point, which represents an ecosystem dependency.

    6. Video Segment Outlook
      Q: How is the Video segment performing?
      A: There is no material change in the Video segment, which continues to face challenges. The company focuses on refresh opportunities with aging equipment and growing Tier 1 streaming opportunities.

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