Harmonic Inc., a provider of broadcast and on-demand video delivery solutions, reported a 25% rise in Q3’08 profits from Q3’07. What’s positive about their Q3’08 conference call is that although they say there’s no clarity for upcoming quarters, they are not seeing any indications of softening or a changing trend in the industry in terms of demand for cable and broadcasting.
Even the wireless and internet trends that they are seeing bolster their belief that the industry fundamentals haven't changed and are on track for growth.
Incidentally, they maintain that their customers, particularly the larger ones, are doing fine as well. Although they acknowledge that some will likely struggle to obtain credit for purchases.
We continue to see strength world wide, in terms of, emerging video delivery models and competition around that… Even up until this week, we have not seen competition subside at all. Just today [Oct. 27], Verizon (NYSE:VZ) made a good announcement about the progress it was making with FiOS TV and Cox announced a major new wireless initiative. Last week we saw Comcast (NASDAQ:CMCSA) announce it is… raising the bar of high speed internet access. This is all United States examples. But, to varying degrees, we would see this kind of competitive situation playing out internationally as well.
… The strength was really across the products and a different customer market segments that we saw. We saw again good strength in Cable but also good strength in satellite, direct to home, as well as IPTV.
We have been fairly bullish about Cable all year just because we saw broad opportunities across the spectrum of what we do product wise… All key parts of cable… represented the single largest year-over-year increase for us to date.
It is undoubtedly true that we are going to have some customers whose ability to invest is adversely affected. So far, we do not have this view for any of our largest customers and we do not yet have a view that this will be a significant impact on us.
Our results for the third quarter included the charge of approximately $800,000 for the impairment of a $1 million investment in Lehman Brothers’ debt. Aside from this, we believe that our cash and marketable securities are conservatively invested and in particular well diversified to withstand current conditions in the markets.
Not hunkering down, focusing on M&A for use of their considerable cash:
Q: Your cash and marketable securities position continues to grow $293 million, close to $300 million at this point, what are your current thoughts regarding acquisition, share repurchase, other activities with the cash?
HLIT: I think complementary M&A is the first priority in the first thought process around the strong balance sheet and I would say the current economic environment is it really not altered our strategic view. We continue to be fundamental believers in the way this market is going to go forward, the way new technology is going to play a key role and that we continue to keep our eyes out for complementary technology companies that can both technology as well as financially booster our competitive position.