- Some Harmonic investors want the company to sell itself, after it predicted delays in DOCSIS gear shipments
- They think Ciena, which does optical networking with a number of operators, would make a good buyer
- But cable upgrade delays don’t come as a surprise given recent developments around DOCSIS 4.0 chips, said Dell’Oro’s Jeff Heynen
Not all is in sync at Harmonic. Some investors think the company would be better off selling itself – to Ciena.
Ancora Holdings Group on Monday urged Harmonic to consider “a potentially value-maximizing sale to one of the many logical acquirers in the space.” Romanesque Capital, another Harmonic shareholder, is also in favor of a sale.
What’s in it for Ciena? According to Ancora, buying Harmonic would help the optical vendor further its “ongoing diversification efforts by deepening existing relationships” with cable operators.
Harmonic specializes in distributed access architecture (DAA) and virtual cable modem termination systems (vCMTS), key components for operators as they prep their networks for 10 Gbps capabilities. Both Charter and Comcast have deals in place with Harmonic for its cable tech.
Ciena, aside from having a sizable foothold in optical networking, jumped into the broadband access business a couple of years ago.
“Harmonic and Ciena’s largest customers are significantly larger than each of the two companies,” Ancora wrote in its presentation. “So combining their businesses would also strengthen their supplier power/negotiating power.”
On Harmonic’s Q3 earnings call, execs said they might see delays in DAA and vCMTS gear shipments in 2025 as customers push back their DOCSIS 4.0 deployment plans.
Ancora probably wasn’t too thrilled to hear that, according to Dell’Oro Group VP Jeff Heynen.
The investor said despite Harmonic’s “strong” financial performance, its stock price isn’t as high as it could be due to “management’s communication issues.”
“I am sure executives from other cable equipment vendors were upset, as well, as their stock values also declined based on the news,” Heynen told Fierce.
DOCSIS dealings
However, some delay in cable upgrades makes sense, given a recent development in DOCSIS 4.0 chips.
Broadcom, Charter and Comcast announced in September they’re collaborating on a “unified” chipset that will essentially allow operators to deploy both the extended spectrum (ESD) and full-duplex (FDX) flavors of DOCSIS 4.0.
This opened the door for more operators, large and small, to use Broadcom chips for their network upgrades. Previously, access to the chips was limited to Tier 1 operators that had signed joint development agreements with Broadcom.
Harmonic CEO Nimrod Ben-Natan said on the earnings call said up until “literally six weeks ago,” the Broadcom chips were only available to a small group of operators. “Now it's available to everybody.”
“There is bound to be some time required by some operators to gauge their DAA strategy going forward with the more widespread availability of Broadcom’s Unified chipset,” Heynen said.
But the delay doesn’t change the total amount of money these cable operators are going to spend on DAA and fiber equipment, he explained. The revenue would simply be spread out over a longer period of time.
“I think Ancora is suggesting that the fact that Harmonic didn’t explicitly say that as a follow-up was a sort of ‘miscommunication’ on behalf of the executive team,” said Heynen.
Raymond James analyst Simon Leopold said, “While we believe the delays are timing issues, with the fundamental evolution of cable network architectures still solidly intact, the latest delay reduce[s] investors’ confidence in Harmonic’s ability to deliver on forecasts.”
Could Ciena make a play?
It’s too early to say whether Harmonic would actually want to sell. But ever since Ciena acquired broadband access vendors Benu Networks and Tibit in 2022, there have been rumors that a deal between Ciena and Harmonic is “imminent,” Heynen said.
Ciena would “certainly make sense” as a prospective Harmonic buyer “as it does pretty significant optical equipment business with North American cable operators,” he said. Harmonic is also “the biggest customer” of Tibit’s MicroPlug optical line terminal (OLT) transceivers.
As Heynen noted in a blog, Harmonic has an edge in the broadband access market because its vCMTS platform can work with both remote PHY devices in DOCSIS deployments and remote OLTs in fiber deployments.
The pieces of the puzzle are there, we’ll just have to wait and see if the companies put them together. But Harmonic so far feels fairly optimistic about the future of its broadband biz.
Comcast made up more than half of Harmonic’s total revenue in Q3, said CFO Walter Jankovic on the call. And Charter made up 18% of its revenue.
“We expect these potential 2025 deployment delays to create a positive tailwind for us in the future,” he said.