Harmonic Bets On OTT SaaS Market To Stem Losses

Harmonic’s financial woes continue with a loss of $31.5 million under GAAP (Generally accepted accounting principles) rules for its second quarter on revenues of $82.3 million. Even so, there are signs of a return to profitability in the longer term.

This follows a year of losses while the company struggles to make the transition from being a provider of infrastructure for traditional pay TV to Software as a Service (SaaS) aiming increasingly at OTT service providers. The company has also been digesting Thomson Video Networks (TVN), the leading player in advanced video compression acquired for $75 million in February 2016 around the time when losses started to mount.

That move was necessary to keep up with leading larger players such as Arris, Cisco, Ericsson and Nokia, which had forged ahead through various acquisitions themselves. Of those only Arris is, like Harmonic, dedicated to pay TV and is also making losses, although the total GAAP deficit of about $87 million for its full year ending March 2017 is less proportionately given its much larger annual revenue of $1.6 billion.

All these vendors are in a transitional phase assimilating acquisitions and plotting their strategies for the IP era where core pay TV customers will account for a dwindling percentage of total revenues. They are therefore seeking to reach out into adjacent areas in various sectors of the IoT (Internet of things), some of which such as the connected car in any case have a significant entertainment component. Many of the skills and technologies required to deliver competitive pay TV services, such as security and analytics, will also play well in the IoT, but the challenge for operators, as well as vendors like Harmonic with limited resources, lies in picking off more accessible sectors rather than spreading themselves too thin.

Harmonic is on the right track with SaaS, but as its president and CEO, Patrick Harshman pointed out it will be some time before this can take up the revenue slack left by decline among some of its traditional customers. “Market demand for video infrastructure delivered through SaaS is accelerating,” said Harshman. “During Q2 2017, with respect to our OTT SaaS business, total contract value grew 90% sequentially to 8% of total bookings, reducing near-term revenue and profitability but establishing a trajectory for stronger financial performance mid- to long-term.” The point is this is replacing direct capital revenue with longer term recurring sales which will take time to really kick in.

Alongside SaaS, Harmonic has focused on helping its cable TV customers migrate to an all IP world at the premises level with CableOS, its software-based Converged Cable Access Platform (CCAP). This runs on off-the-shelf, 1-RU Intel servers incorporating one of the first end-to-end Remote PHY systems, designed to extend higher bit rate services to the end devices, as well as providing a platform for home based IoT services. 

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