Harmonic takes video unit off the block, sets CEO change

Some strategic shifts are underway at Harmonic as the company revealed that it will not pursue a sale of its video business following a review, and that President and CEO Patrick Harshman will step down and retire in June and be succeeded by Nimrod Ben-Natan, another long-time Harmonic exec.

Harmonic kicked off a review of its video business last fall after a number of interested parties inquired about it. Raymond James analyst Simon Leopold estimated at the time that Harmonic's video business could fetch bids in the range of $350 million to $500 million. Harmonic's video segment pulled in $51.9 million in Q4 2023, down 24.1% year-over-year, but the unit's software-as-a-service (SaaS) segment saw revenues rise 26%, to $13.2 million.

Harmonic said the review, which involved the board and outside financial legal advisors, determined that the timing for a sale of the video unit was not right.

"After carefully evaluating a range of alternatives, the Board concluded its review and determined that current market conditions do not support its value creation objectives for the Video business," the company said in a release.

Moving forward, the strategy of the video business will focus on driving scale while also streamlining operations and optimizing the unit's cost structure, Harmonic added, but did not elaborate. Harmonic noted that its board could evaluate opportunities and alternatives for the unit, should they arise.

Related:Harmonic might unload its video business

In a research note issued Monday night, Leopold said he suspects that there was no single buyer for Harmonic's entire video unit, but that there was interest in either the SaaS or the legacy video appliance piece of that business.

CEO transition

Harmonic's decision to retain the video business (at least for now) was paired with word that Harshman, who was appointed CEO back in 2006, will step down to retire on June 11, 2024. Ben-Natan, who currently serves as SVP and GM of Harmonic's broadband business, will take over in the company's top role following the board's evaluation of both internal and external candidates.

Ben-Natan joined Harmonic in 1996 as a software engineer to develop the company's first-generation video transmission platform.

"Nimrod is ideally suited to lead Harmonic and our talented global team into its next chapter of innovation and growth," Patrick Gallagher, chair of the Harmonic board, said in a statement.

Both Harshman and Ben-Natan have helped shape Harmonic's strategy over the past couple of decades. Harmonic also credits Ben-Natan with helping to drive the company's development and launch of a virtual cable modem termination system that was originally known as "CableOS" and rebranded last fall as "cOS."

Related:Broadband sales to accelerate in second half of 2024, Harmonic says

Thanks in large part to Comcast's rollout of that platform along with a recent vCMTS win with Charter Communications, Harmonic is leading the vCMTS sector by a wide margin. Harmonic's cloud-based vCMTS was serving roughly 26.3 million cable modems, or about 15% of the number of cable modems deployed globally, at the end of 2024. Harmonic also finished 2024 with 108 vCMTS deployments worldwide.

But there are challenges ahead. Harmonic's lock on the vCMTS market could be threatened by Vecima Networks, which last month introduced its own vCMTS and, just last week, lodged a $20 million stalking-horse bid for the cable access assets of Casa Systems, the only other supplier with commercial vCMTS deployments. CommScope has also reentered the vCMTS market, and has since secured multiple operator trials underway as well as at least one deployment commitment.

Updated revenue guidance

In concert with the CEO and video unit announcements, Harmonic also provided updated Q1 2024 revenue guidance. The company now expects Q1 revenues in the range of $121 million to $123 million, versus prior guidance of $110 million to $130 million. Among segments, Harmonic expects revenues of $78.5 million to $79.5 million in the broadband group, and revenues in the range of $42.5 million to $43.5 million for its video segment.

Those ranges were largely in line with consensus, noted Raymond James' Leopold, who also maintained his "buy" rating and $18 target on the stock.

"The [CEO] announcement was a surprise, but the succession plan seems solid and the guidance implies that growth expectations and fundamental demand remains unchanged," Leopold wrote. "While we see C-level transitions as a risk, we know Ben-Natan, and we expect a smooth transition."

Harmonic shares were down $1.70 (12.90%) to $11.44 each in Tuesday morning trading.

Harmonic said it plans to host an investor day in June, but did not announce a specific date and time.