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Wednesday, October 31, 2007

BigBand Networks -- the company just got smaller

Last month we wrote about BigBand Networks pre-announcement in which they warned that revenues would be in the range of $35 to $39M, significantly lower than the initially projected $54 to $58M.

This week the actual third quarter results were announced. Revenues were at the high end of the lowered range, coming in at $38.6M, 11% lower than the previous quarter's revenue and beating analyst estimates.

As expected, the company was in the red, showing a loss of $12.2M versus a profit of $1.6M in the previous quarter.

The bad news doesn't stop there. The company also expects to post another loss in the fourth quarter on revenue that is projected to be even lower than the current quarter.

In light of this dismal performance, BigBand has said it is cutting 15% of staff and is discontinuing its Cuda CMTS broadband Internet access product. This will, of course, result in asset and inventory charges as the product line is shut down, further depressing fourth quarter results.

Is there light at the end of the tunnel? Management expects BigBand to regain profitability by becoming a leaner company and by focusing on its digital video segment. It seems this is where the action is as it has received wins in this segment from a number of large customers lately. The company was just selected by ComCast. In August, it was Cox Communications. In June, Korean cable company Keumkang Cable Networks. In March, six Chinese cable companies came on board. They are a supplier to Verizon and the FiOS program and Verizon's recent quarterly results indicate that FiOS is gaining traction among their customers.

The company does have some positives going for it. They have been building their business for eight years; ie, they are not a flash in the pan start-up. Their customer base might be too concentrated but those large cable companies do have deep pockets and the industry is moving in a direction that should benefit BigBand if BigBand can manage to stay in the game.

A wild card in all this is that Time Warner Cable is both a customer and a shareholder in BigBand. Time Warner received stock in exchange for taking a chance on BigBand in the company's early days. It would be in Time Warner's interest to make sure that BigBand survives and prospers.

So it appears there might still be hope for BigBand Networks but reading into management's comments, it could be several quarters before the company begins to truly turn around.

Disclosure:
author still owns a few forlorn shares of BBND

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