We develop and sell (i) versatile and high performance video delivery software,
products, system solutions and services that enable our customers to efficiently
create, prepare, store, playout and deliver a full range of high-quality broadcast
and “over-the-top” (OTT) video services to consumer devices, including
televisions, personal computers, laptops, tablets and smart phones and (ii)
cable access solutions that enable cable operators to more efficiently and effectively
deploy high-speed internet, voice and video services to consumers’ homes.
We operate in two segments, Video and Cable Edge. Our Video business sells
video processing and production and playout solutions and services worldwide
to cable operators and satellite and telecommunications (telco) pay-TV service
providers, which we refer to collectively as “service providers,”
and to broadcast and media companies, including streaming new media companies.
Our Video business infrastructure solutions are delivered either through shipment
of our products, software licenses or as software-as-a-service (“SaaS”)
subscriptions. Our Cable Edge business sells cable access solutions and related
services, including our CableOS software-based Converged Cable Access Platform
(CCAP) solutions, primarily to cable operators globally.
Harmonic was initially incorporated in California in June 1988, and was reincorporated
in Delaware in May 1995. Our principal executive offices are located at 4300
North First Street, San Jose, California 95134. Our telephone number is (408)
542-2500. Our Internet website is http://www.harmonicinc.com. Other than the
information expressly set forth in this Annual Report on Form 10-K, the information
contained or referred to on our website is not part of this report.
Video Business
We believe our customers must continue to employ innovative technologies and
services to address key trends in the dynamic video industry.
Demand for Video Services Anytime, Anywhere, on any Device. In our ubiquitous
multiscreen video environment, video programming and content needs to be transformed
into multiple formats, bit rates and resolutions for display on a broad range
of devices.
Demand for High Quality Video. Consumer demand for high quality video anytime,
anywhere and on any device requires ever-increasing bandwidth capacity in service
providers’ networks, as well as technology that maximizes network bandwidth
efficiency. With the advent of Ultra High Definition (Ultra HD) televisions
and OTT services increasingly being rendered in “4K” high resolution
and consuming approximately four times the bandwidth of traditional HD channels,
we believe next generation compression technologies, such as High Efficiency
VideoCompression (HEVC) or advances in H.264/AVC codecs, as well as increasing
requirements for HDR encoding, will continue to remain a high priority for distributors
of video.
Streaming Video Service. Consumer demand for video download and streaming services
from new media companies such as Netflix, Hulu, Google (YouTube), Amazon (Prime
Video) and Apple (iTunes) continue to experience significant global growth.
These and other similar services aggregate third-party and original content
and stream video “over-the-top” (OTT) to any Internet-connected
device utilizing Internet service providers’ networks at no incremental
infrastructure cost to the consumer.
Time-Shifted Viewing. “Time-shifting” technologies include digital
video recorders (DVRs), cloud and network DVRs (cDVR and nDVR) that allow a
subscriber to store programming on the service provider’s servers or in
the cloud, and video-on-demand (VOD) services.
In response to these trends and the success of new media OTT streaming companies,
as well as the growing trend of “cord-cutting” (i.e., consumers
canceling traditional pay-TV subscriptions in favor of streaming services) and
the increasing number of “cord-nevers” (i.e., consumers who have
never had a pay-TV subscription):
service providers and broadcast and media companies continue to provide more
of their own OTT streaming video services, including OTT streaming of live (or
“linear”) television programming;
service providers are competing to offer higher quality video signals in HD,
including evolving initiatives to deliver video in 4K Ultra HD resolution;
service providers are developing and expanding their content delivery and Internet
Protocol (IP) networks, and increasing the capacity and efficiency of their
networks with investments in various delivery infrastructure technologies to,
among other things, maximize video quality and minimize bandwidth utilization;
service providers continue to consolidate to achieve greater economies of scale
and subscriber concentration, and acquire media companies to expand their content
libraries and capabilities to develop original content;
service providers continue to enhance and differentiate their content offerings,
either through in-house development of new content or through acquisitions of
existing content brands; and
service providers have an ongoing need, despite the migration of traffic to
OTT, to provide services over their existing broadcast distribution infrastructures.
We believe that the delivery of video over IP will continue to change traditional
video viewing habits and distribution methods and may alter the traditional
advertising and subscription business models of major service providers.
Our Video Markets
Service Providers
Cable Operators. Cable operators continue to focus on various initiatives to
improve and differentiate their service offerings from competing service providers,
including: bundled digital video, voice and high speed data services; expansion
of VOD libraries and on-demand and streaming service offerings; upgraded consumer-facing
applications; video delivery over IP to broadband enabled consumer devices;
and capacity enhancement of high-speed data services.
Satellite Operators. Satellite operators around the world have established digital
television services that serve tens of millions of subscribers, with the ability
to provide tens of thousands of linear channels. We believe these linear services
will continue to grow, particularly in emerging markets, while, in parallel,
satellite operators launch new streaming services, such as Sling TV and DirecTV
Now, to address younger generation viewers and new consumption habits.
Telcos. Telcos have established video offerings to successfully compete in the
video marketplace, including high-quality HD content, larger VOD libraries,
time-shifting television services, bundled voice, data and video packages and,
more recently, streaming services. In many cases, telcos are making significant
infrastructure investments to expand their video offerings into IP services
and gain market share, while certain telcos are also acquiring satellite and/or
cable companies to achieve market reach and scale.
Broadcast and Media Companies
Network broadcasters, programmers and content owners require video contribution
and distribution solutions to transmit live programming of news and sports to
their studios for subsequent broadcast, and deliver the same programming and
content to service providers for distribution to their subscribers. Broadcasters
generally produce their own news and sports highlight content, along with hundreds
of channels of network programming that is played-to-air under strict reliability
requirements using playout servers and software.
With broadcast and media companies continuing to expand their offerings to support
a wide range of live and linear content and making content available in higher
quality video formats and on-demand, we believe these trends are accelerating
demand for functionally collapsed playout systems with integrated media orchestration
software, as well as increasing demand for media servers and video-optimized
storage solutions equipped to support higher resolution formats. In addition,
in order to achieve faster time-to-market and reduce operational costs, we believe
content providers are adopting cloud-based technologies and transitioning portions
of their operations into public cloud environments, thereby enabling expanded
services at a more rapid pace, the distribution of video directly to consumers
or to distributors over IP and public networks, and more efficient and scalable
global operations.
In the terrestrial broadcasting market, while broadcasters in various countries
that have not yet completed converting from analog to digital transmission continue
with change-over efforts, operators in numerous other countries around the world
are adopting the next generation of digital transmission technologies, such
as the DVB-T2 standard and ATSC 3.0 standards. The ongoing conversion from analog
to digital transmission and the adoption of next-generation transmission standards
provides the opportunity to deliver new channels, HD and Ultra HD services,
premium content, and interactive services.
Over-the-Top (OTT)
According to a recent Cisco study, IP video traffic accounts for a significant
majority of Internet traffic globally, and video traffic will only continue
to increase for the foreseeable future. We believe service providers and broadcast
and media companies with OTT services and offerings will continue to require
high-quality video processing solutions and new technologies in order to process
and distribute large amounts of live and VOD content from a wide variety of
sources to a broad array of consumer devices, and to optimize adaptive bitrate
video streaming quality and bandwidth utilization.
With the continued proliferation of OTT streaming content and program channels
similar to channels currently available from service providers, monetizing this
content through the use of national, regionalized and personalized advertising
delivered to the varied devices of individual viewers has become a key area
of focus for companies with OTT offerings. We believe OTT ad insertion and other
related content customization solutions will continue to attract increased investments
from OTT companies.
Cable Edge Business
Industry Challenges
Cable operators continue to face challenges from the rapid growth of demand
for broadband bandwidth in their networks, driven primarily by:
more users with more connected devices and applications;
bundled digital video, voice and high speed data services; and
bandwidth-intensive VOD and OTT streaming video services, and cloud applications.
In addition, the operation of network infrastructure is space, power and personnel
intensive. Hardware-centric networks can also be expensive to update or replace.
To remain competitive, especially in the face of heightened competition from
non-cable service providers such as telcos to deliver gigabit data rates, cable
operators need to incur significant capital expenditures to upgrade existing
equipment and network technologies.
Technology Trends
CCAP. In order to deliver gigabit data rates, cable operators are aggressively
driving broadband access technologies such as the Converged Cable Access Platform
(CCAP) architecture. The CCAP architecture combines edge “quadrature amplitude
modulation” (QAM) and “cable modem termination system” (CMTS)
functions in a single solution in order to combine resources for video and data
services.
DOCSIS 3.1. We believe the cable industry will move rapidly to DOCSIS 3.1, which
enables increased bandwidth data transfer over existing broadband infrastructure.
Virtualization. We believe cable operators are moving toward more software-driven
architectures. Virtualized software solutions that are decoupled from underlying
hardware and run on commercial off-the-shelf (COTS) servers allow for significantly
increased efficiencies, upgradability, configuration flexibility, service agility
and scalability not feasible with hardware-centric approaches. We believe a
software-based, centralized CCAP-based system can significantly reduce cable
headend costs, especially costs related to physical space and power consumption,
and increase operational efficiency, and that the deployment of these systems
will be an important step in cable operators’ transition to all-IP networks.
Distributed Architecture. In addition to centralized CCAP systems, we believe
there is growing interest in distributed Remote PHY solutions, particularly
in competitive gigabit service markets where cable operators are competing with
fiber-to-the-home (FTTH) services and are extending fiber networks deeper into
their access networks. A Remote PHY architecture, which involves COTS servers
running virtualized CCAP core software at a headend and the distribution of
Remote PHY nodes closer to end users, alleviates the power and space requirements
of centralized systems at headend sites due to the fact that the RF processing
is distributed into the field outside of the headend. We believe this distributed
architecture will enable service providers to efficiently scale to support data
and IP video growth.
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