BigBand Reduces CMTS Staff

[uBR10012]

AUGUST 24, 2007





BigBand Networks Inc. has laid off a portion of its cable modem termination system (CMTS) staff and reallocated some of those people toward its digital video business, the primary bread winner at the Redwood City, Calif.-based company.




Wahlman did not estimate how many people were let go from the BigBand CMTS team, which is primarily based in the Boston area, but it is believed that as many as 15 people were affected in a decision handed down more than three weeks ago.

"This should not be surprising, but perhaps still noteworthy because it does call into question the viability of the CMTS business" for BigBand, Wahlman wrote.

Wahlman believes BigBand has offset any reduction in CMTS with staff increases on the video side, where the bulk of the company's revenues are originating.

In the second quarter, BigBand posted $46.3 million in product revenues, up from $32.2 million in the year-ago quarter. BigBand attributed the jump primarily to a $14 million increase in revenues from its video products.

BigBand entered the CMTS business in 2004, when it purchased the IP Cable division of ADC Telecommunications Inc. Financial terms of the deal were not disclosed at the time, but BigBand valued the acquisition at $25.1 million in an S-1 prospectus it filed late last year. ADC originally acquired those CMTS assets in the fall of 2000 from Broadband Access Systems in a stock deal valued at $2.25 billion at the time.

Since the ADC deal, BigBand has had limited success building its share in a competitive CMTS sector already dominated by larger companies such as Arris International Inc. Cisco Systems Inc. and Motorola Inc.

Cox Communications Inc. is considered BigBand's marquee CMTS customer in the United States, but estimates show BigBand owns less than 10 percent of the overall market. Of recent note, Arris has claimed it can own 33 percent of the CMTS pie by 2010, from about one-fourth today, as MSOs roll out Docsis 3.0.

Wahlman estimates that roughly 10 percent of BigBand sales are from its CMTS division, with the balance of revenues coming from its video-related businesses, which include gear and software for switched digital video (SDV).

Wahlman, who cut his 12-month price target on BigBand shares to $11 from $14, said he "would not be surprised if the eventual outcome would be for [BigBand] to effectively mothball its CMTS business by reducing its investment in product development to a point which eventually could approach zero."

That would mark a major turn of events, as BigBand has been focused on next-generation CMTS projects like Docsis 3.0 and a more flexible modular CMTS design that allows cable operators to scale upstream and downstream capacity independently. BigBand has seen some early adoption of its M-CMTS implementations overseas.Another possibility: BigBand could repurpose its CMTS technology and label it as an IPTV product, rather than one dedicated to high-speed data-over-cable, Wahlman pointed out.

That could come into play if cable operators develop and deploy video-over-Docsis systems that use a new breed of downstream-heavy edge QAMs, another product in BigBand's arsenal.

Harmonic Inc. was recognized for just such an edge QAM demo earlier this month at the CableLabs Summer Conference in Keystone, Colo. There, Harmonic's video-over-Docsis implementation was voted "best new idea mostly likely to succeed" at the event's Innovation Showcase.

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