Harmonic shares go sour on earnings warning

Shares in the provider of high-speed Internet service plunge 42 percent after the company announces that earnings could fall as much as 50 percent below expectations.

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Shares of Harmonic, a provider of high-speed Internet service, plunged more than 42 percent today after the company announced that earnings would fall as much as 50 percent below expectations.

Shares in the Sunnyvale, Calif.-based company hit a new 52-week intraday low of $22.69. Shares closed at $23.44, down $17.38. In the past year the shares have traded as high as $157.50.

After a few hours of trading, volume surpassed 15 million shares, more than five times the stock's daily average volume. By market close, volume surpassed 22 million shares. The stock was the third most actively traded on the Nasdaq, following only WorldCom and Dell Computer.

Harmonic makes transmitters, receivers and data-delivery systems for high-speed Internet access and video-on-demand services.

In a statement released late yesterday, the company said it expects to post revenues of $74 million to $82 million for the second quarter and pro forma per-share earnings of 12 cents to 16 cents.

Analysts surveyed by First Call previously expected the company to earn 29 cents per share, up from 10 cents for the year-ago quarter.

Including adjustments for purchases, the company expects to report a net loss for the quarter of $87 million to $90 million, or $1.83 to $1.87 per share. The company noted that the figures are preliminary.

The earnings warning led other analysts to downgrade Harmonic shares today. CIBC World Markets and Josephthal cut the stock to "hold" from a "buy" rating, while Wit SoundView dropped the stock to "buy" from "strong buy."

On May 3, Harmonic closed a deal to acquire DiviCom, the digital video equipment division of C-Cube Microsystems, a transaction then valued at $1.7 billion.

Soon afterward, the stock took a hit over concerns about the fiscal health of the newly acquired division. The stock has fallen 68 percent this month.

"Their DiviCom business was completely in the toilet this quarter," said UBS Warburg analyst Anton Wahlman, who previously expected the company to post $108 million in revenue and earn 31 cents per share.

On a pro forma basis, Wahlman said DiviCom earned $39.4 million in the first quarter, and he expects the unit to make $14 million this quarter.

"They overpaid for the DiviCom business and guided people too high on their revenue expectations," Wahlman said. "Maybe previous (DiviCom) management sold them on these (expectations), maybe Harmonic did not do their due diligence, maybe it was a combination of many factors. I don't know."

Harmonic executives could not immediately be reached for comment.

Earlier this month, Harmonic shares slipped on concerns that sales to AT&T were declining.