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Harmonic (NASDAQ:HLIT) shares jumped more than 8% Tuesday after Charter Communications (NASDAQ:CHTR) selected the company as its partner to deploy its CableOS virtual CMTS technology as a core element of its next-generation broadband network, which was described as a “major win” by Needham & Company analysts.
The analysts, who have a Buy rating and $19 price target on HLIT shares, believe it reaffirms Harmonic’s dominant market position and will result in likely revenue upside.
“We have been anticipating this win for several quarters and viewed the formal announcement as imminent when CASA (NR) acknowledged its loss at Charter last week,” wrote the analysts. “Vecima(VCM.TO) last week also announced a U.S. tier 1 MSO hardware supplier contract, which we believe is with Charter and will be shared with HLIT. We believe HLIT has the world’s only vCMTS software product deployed at scale, including by its key customer Comcast (39% of HLIT revenues in 2022).”
Although the contract terms, including size and timing, were not disclosed, the Needham & Company analysts believe the Charter win “could approach the size of Comcast given both operators are similar in size.”
The analysts explained that HLIT’s vCMTS software deal with Comcast was worth $150 million, and he thinks Charter could be even larger due to additional DOCSIS 4 and FTTH features included.
“We estimate the Charter hardware opportunity at $500MM-$700MM, including its subsidized rural expansions,” they stated. “Given Charter’s aggressive public plans to complete its network upgrades over 2024-2026, we expect HLIT could see initial revenue in 2H23 and a material ramp in 2024.”
“We see this software win as highly strategic and sticky, with cable operators unlikely to add second vendors for their software core and unlikely to revisit a supplier decision for at least 5 years while providing future additional software sell-in opportunities.”
