Focus a Key Element in Aurora, Harmonic Deal

The announcement last week that Harmonic (NASDAQ:HLIT) will sell its cable access business to Aurora Networks reflects the vision both have for the future. Explaining the impetus behind the sale, there was talk of sharpening product lines and focusing on solving targeted problems for service providers.Specifically, for a purchase price of $46 million in cash, Aurora gains Harmonic's optical transmitters, amplifiers, receivers, and nodes and essentially doubles its footprint, something it doesn't believe would have been possible without the deal."There is not a lot of overlap in customers despite there being quite a lot of overlap in products," said John Dahlquist, VP of marketing for Aurora. "Most of (Harmonic's) customers are really long term customers that are happy with the product line." In other words, it was easier to acquire the business, literally, than continue attempting to chip away at market share.The company believes the move is a strategic fit as Aurora plans to increase emphasis on products in the node. "We believe cable operators will be working hard to remove from hubs and headends much of the equipment they have, to make way for new equipment and new ways of delivering it," Dahlquist said. "The link between headends and hub sites and nodes will become a digital link rather than the linear link that it is today."From Harmonic's point of view, the company recognized it was not the market leader in optical transmission and decided that shedding its portfolio of products would allow it to be "laser focused" and to "fire on all cylinders," when it comes to video delivery infrastructure equipment."The synergies with the access business were limited," said Peter Alexander, SVP and chief marketing officer at Harmonic. "We have a much stronger market position in production and playout, in video processing and in the cable edge. We are No. 1 in all three .... This is an ideal opportunity to focus and to do the right thing by our customers by divesting the business."Harmonic recognizes the loyalty of its cable access customers, many of whom will continue in a relationship with the company via its QAM platform or its new CCAP solutions, for example."When one of your children gets married, you don't lose a son; you gain a daughter," Alexander said. "Customers will find us to be far more focused, and we are ultimately hoping they will be pleased with ... what Harmonic has to show from a CCAP perspective and Aurora from an optical transport perspective as opposed to having to balance our investments across both."As for the Harmonic cable access team, in broad terms, about 70 of the company's approximately 1,200 employees work in the division. What Alexander calls the "core experts" had already accepted positions with Aurora by the time the announcement was made.Aurora is in talks with the rest of the folks. "We have an interest in bringing on their people, but it will be up to them to decide," Dahlquist said.Businesswise, cable access brought Harmonic $52.9 million net revenue in 2012, which represents about 10% of the company's overall annual revenue. "We got a good price for it," Alexander said. "It was a win-win in that respect. We have said it will be neutral to earnings per share, but blended gross margins will increase."The deal is expected to close by the end of the first quarter. There will be a five-month transition period during which Aurora will take over production of the Harmonic product line. Dahlquist said there are no plans to discontinue anything.Monta Monaco Hernon is a free-lance writer. She can be reached at [email protected].