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Scientific-Atlanta slips on stalled outlook

Shares slump after the company pulls financial guidance for its current quarter and all of 2002, saying its cable company customers are slowing installations of digital cable.

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Shares of Scientific-Atlanta closed down 15 percent Friday after the company pulled financial guidance for its current quarter and all of 2002, saying that its cable company customers were slowing their installations of digital cable.

Scientific-Atlanta is the second largest maker of digital set-top boxes in the United States. The Lawrenceville, Ga.-based company said that although its customers reported an increase in the total number of digital subscribers, growth is slowing.

For instance, Cox Communications, which in February signed a deal to purchase at least 240,000 digital set-top boxes from Scientific-Atlanta, said last month that it was scaling back predictions for its subscriber growth, particularly for new services such as digital cable and high-speed Internet access.

The company said it's also unclear how much inventory its customers have in stock already. In addition, "a declining economy may adversely affect consumer purchases of new digital services, and thus purchases of our digital products by the (cable companies), even if it does not impact monthly...subscription revenues," the company said in a release.

The news sent Scientific-Atlanta's stock tumbling $3.77, or 15 percent, to $21.24 by market close Friday.

Analysts had been expecting the company to report a profit of 28 cents per share for the first fiscal quarter and $1.52 per share for the full year, according to First Call.

Analyst said that the cable companies may have overanticipated demand for digital cable, and consequently, built up a glut of inventory.

But they held out hope that the problem is a temporary one that could be resolved with the advent of new technology.

"The next growth phase for digital set-top box sales will be driven by rollouts of video-on-demand and the resulting consumer demand pull," Prudential Securities analyst Randy Scherago wrote in a research note. "Accelerating (video-on-demand) rollouts by cable operators in the United States in the second half of 2001 should drive increased digital cable penetration, which should in turn accelerate sales of digital set-top boxes in calendar 2002."

On Thursday, five major movie studios announced plans for a joint on-demand movie service for broadband Internet users in the United States. A launch of the yet-to-be-named service is at least several months away.

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