Soft European market knocks Harmonic Q1 earnings

A slow start and a soft European market cost Harmonic (Nasdaq:HLIT) in the first quarter of 2012.

The video infrastructure company, in its preliminary Q1 earnings, reported net revenue of $127.7 million, down roughly 4 percent from $132.8 million a year ago.

The uncertain start to the year resulted in a GAAP net loss of $7.5 million, or 6 cents per share for the quarter ended March 30, compared with a profit of $500,000 for the first quarter of 2011.

Harmonic reported a record quarter in Europe a year ago, and Chief Executive Officer Patrick Harshman, in an earnings call, said the company was disappointed with Q1 revenues and that its sales in Europe remained slow for the quarter.

He said macro-economic factors likely played a part, as did regulatory uncertainties with telcos, which are a major customer for the San Jose, Calif.-based company.

"The truth is, we don't know," Harshman said. "What was a surprise was that spending in Europe, unlike elsewhere, didn't start to pick up."

The European market makes up about half of Harmonic's international sales.

"We're fundamentally optimistic that the pay-TV business is a strong one in Europe," he said, but added that Harmonic remains cautious as to how that market wil play out in Q2.

The news for the company in other regions was better, Harshman said.

"Our bookings growth in other geographies underscores the fundamental strength of our business," he remarked. "During the first quarter, we saw robust demand for our HectoQAM product and record professional services and support bookings. We're also encouraged by the positive customer response to the introductions of our powerful new playout, distribution and multiscreen delivery solutions."

Bookings were up 8 percent from a year ago, to $142.5 million, with particular strength in the edge and access segments.

Latin American sales were strong, he said, and a revival of the Japanese market drove growth in APAC.

"As we did in 2011, we continue to expand our global footprint with broadcast and media customers," Harshman said, pointing to significant wins with ModernVideo Film, NBC and Home Depot. Harmonic also recently announced wins with Swisscom mobile and with NBC for its broadcast of the London Olympics this summer. Finally, Harmonic scored its largest-ever transcoding software deal with "a major Internet player," Harshman said.

Despite its Q1 business bump in Europe, Harmonic is expecting better news this quarter.

"We continue to expect sequential growth in the second quarter and believe that the global proliferation of video content and media outlets, along with increasing demand for higher quality video in every format delivered over bandwidth constrained networks, plays to our core strengths," Harshman said.

Harmonic said it expects gross revenue between $130 million and $140 million in the second quarter, with GAAP gross margins of 44-46 percent. Harmonic also said it would be repurchasing $25 million in common stock.

For more:
- see this release
- listen to the earnings call

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