Market Insight

Harmonic to acquire Omneon

May 12, 2010

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Video processing and network infrastructure specialist Harmonic is set to acquire Omneon, a US-based broadcast server provider which has recently expanded into ingest and asset management systems. The deal, expected to close in Q3 2010 and valued at $274m, will see Harmonic issue 17m of its shares and expend $190m in cash up-front. Despite support from the two companies' boards, the acquisition is yet to receive approval from the SEC and Omneon stockholders.

Harmonic has traditionally positioned itself within two infrastructure segments: headend signal processing, and QAM-modulated content distribution. The company's decoders, encoders, multiplexers, and network management system (NMS) have been at the core of cable and DTH operator headends, while its EdgeQAM modulators have been central to the distribution of MPEG video in the network, and to the implementation of modular-CMTS architecture.

While this positioning ensures that Harmonic's revenues are spread across multiple network infrastructure areas, the firm's business has nonetheless coalesced around a fixed set of pay-TV operators. Half of Harmonic's revenues consistently depend on shipments to its 10 largest pay-TV customers, and given that expenditure on network infrastructure has fallen across the pay-TV industry in 2009, it comes as no surprise that the firm's revenues have contracted by 12 per cent YoY, and that the firm posted 2009 operating income of USD -12m.

Harmonic have expanded over the last few years by acquiring Scopus, a contribution infrastructure provider, and Rhozet, a software transcoding provider. The two acquisitions have opened sales channels to broadcasters, and have diversified the products that Harmonic makes available to pay-TV operators. The purchase of Omneon is likely to provide a further point of access into the broadcast playout market, as well to provide a route for Harmonic's transcode technology to be integrated within playout and asset management systems. More broadly, the ability to ship both transcoding hardware and content management systems is likely to attract a new breed of buyer: the content owner or broadcaster who has increasingly become the operator of an IP-based, open internet access portal.

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