Harmonic's CEO Presents At UBS Global Technology And Services Conference - Conference Call Transcript

Harmonic Inc. ( HLIT)

Presentation Conference Call

November 16, 2011 3:30 pm ET

Executives

Patrick Harshman – President, Chief Executive Officer

Carolyn Aver – Chief Financial Officer

Analysts

Presentation

Nikos Theodosopoulos

Thank you, we’re going to get started here. We’re happy to have in this session Harmonic. Presenting for the Company is Patrick Harshman, the CEO. Carolyn Aver is here also. She’ll be attending the break-out afterwards. So with that, let me turn it over to Patrick.

Patrick Harshman

Okay, thanks very much, Nikos, and thank everybody for joining us today. Before I go further, I do need to mention that we may be making forward-looking statements, and I’d refer all of you to our risk statements and our SEC filings.

We at Harmonic think that we are positioned extremely well in terms of some very exciting dynamics that are happening in the marketplace. We look at an accelerating and opportunity rich video economy where we see more and more content being generated. We see more and more competition between aggregators and service providers of this video content, and of course we see more and more ways that consumers are accessing that content both through fixed, mobile networks, managed networks over the top networks. Underpinning all of this is technology and Harmonic’s strategic ambition is to be the leading provider of the enabling video delivery technology that powers this video economy.

We’re pursuing three distinct growth strategies or three elements of our growth plan: new products and applications, international growth, and expansion of our historical customer base to include media customers, broadcast and media companies. And in my short time here, I’d like to tell you a little bit more about each of these strategic initiatives in a little bit more detail.

We’ll start first with products and applications. We break our product categories down into four areas, each of which I’ll touch on briefly. Video processing – this is perhaps what we’re best known for. This is managing video content. It’s what enables us to help our customers deliver video in high definition formats, low resolution formats to mobile devices, advertising insertion, et cetera. Video production and playout – this is for the content creators in particular who are developing and originating new content, and this product category, representing about 20% of our revenue, came to us through an acquisition of a company called Omneon, closed just about one year ago today. I should have noted that our video processing business is about 40% of our revenue. Going back to the roots of the Company, where we started – cable edge and access – infrastructure technology targeted specifically at cable operators, about a quarter of our business, and our revenue from services and support about 15% of our revenue. We think of ourselves as technology and market leaders in each of these segments, and we see continuing growth opportunities in each of these areas.

Looking back over the past year, video processing has been the fastest grower for us. Our video production and playout line has grown very minimally as we’ve integrated that company, Omneon, over the past year. We’ve seen modest growth from our cable edge and access delivery, although we’ve recently rolled out some very exciting new products there; and our services and support business grows roughly in line with the rests of the business.

Now part of the value proposition of the Company to our customers is our heavy strategic focus on video. We think we’re the largest company out there solely focused on innovative video technology. Our R&D investment is approximately 100 million – we think the largest in the industry against competitors large and small; and this is approximately double from what it was just a couple of years ago, and this is a very powerful message for our customers as is, of course, the fact that we’re drawing now on a very rich array of underlying video technology building blocks spanning historic Harmonic’s business, Omneon business, and our Rhozet business particularly for video on demand over-the-top.

So let’s take a little bit closer look at our video processing business, which is the largest piece of revenue – about 40% of our business. We receive a lot of questions about what does over-the-top mean, what does new media mean, and how does this square up against traditional video delivered to television sets? Our view is that just like we saw standard definition television expand to high definition to address new widescreen televisions, well now with the addition of new video consumption devices – iPads, iPhones, the like, or the tablet devices, PCs – we simply see this as a natural progression or evolution of the market to encompass more and more screens over both fixed and mobile networks. And very schematically what you see here depicted is the way we are positioned here by the white arrow in the blue circle of how we try to work with our customers. The majority of our work is with both media companies and video service providers. The majority of the applications we support is delivery of video over managed networks, cable infrastructure, satellite infrastructure, IPTV telecom networks; but increasingly we’re seeing growing amounts of traffic, albeit still relatively small, are being delivered over-the-top to consumers. And most of our customers look at this market as not an either-or perspective but in a unified way. We’re working with cable operators, for example, who are planning or rolling out services both over their managed cable network, traditional and IP, as well as over-the-top to reach consumers who are away from their living rooms and their television sets.

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