What the Heck is Going on at BigBand (BBND)
Written by: Zack Miller | August 30, 2007
For those of us following BigBand Networks (BBND) undulations, we’re trying to get a handle on what’s going on these days. After IPO-ing in March and seeing a strong run-up in shares, the company has seen a fast erosion of its share price, now down 38% since floating.
Astute news junkies will have seen the LightReading articles over the past couple of weeks with some confusing and seemingly contradictory information on the de facto network architecture provider for digital simulcast.
The first article, published on August 24th and entitled BigBand Reduces CTMS Staff, mentions speculation by a ThinkEquity analyst, Anton Wahlman, that BigBand is reducing staff in their Cable Modem Termination System group or, CMTS, in the Boston area. BigBand’s CMTS business accounts for roughly 10% of their total revenues while their bread and butter business, the Digital Video business, accounts for the rest.
In his note, Wahlman said, “This should not be surprising, but perhaps still noteworthy because it does call into question the viability of the CMTS business.” BBND competes with the Arris Group (ARRS), Cisco (CSCO) and Motorola (MOT) in this business and only has about a 10% market share, which seems to be eroding.
On August 28th, another LightReading article was published, this time entitled “BigBand Not Abandoning CMTS” in which the company itself rebuffed such a suggestion that they were squirming out of the biz.
Rather, to answer the question about whether or not BigBand Networks is abandoning CMTS, the answer is, like many other classical Jewish questions, “yes” and “no.”
It sounds like what the company is saying is that while headcount has been reduced in their CMTS group, those bodies have been “[re]focusing those efforts on Docsis 3.0 and an emerging modular architecture (called, M-CMTS) that allows cable operators to scale upstream and downstream capacity independently.”
In other words, BigBand is sticking with an ailing business but repurposing it by trying to find a market it can compete in and not run head-on into Arris, Cisco and Motorola. BigBand will focus its CMTS efforts on Docsis 3.0 and the M-CMTS, which breaks out functions like downstream and upstream capacity and packet processing, instead of packing these functions together in one chassis.
This structure, in essence, pairs together BBND’s Cuda 12000 CMTS with its edge QAM — with the Cuda chassis taking care of the upstream and the edge QAM handling downstream.
What are investors supposed to make of this?
I think it’s a good sign — BigBand is focusing on developing some really interesting technology. This technology, if assimilated into its roster of clients that include 9 of the top 10 service providers (like Cox and Time Warner Cable).
Imagine a cable architecture that allows a user to receive infinite programming, including web content and H-D, on virtually infinite spectrum. Imagine a cable system with the ability to send individual programs and advertisements to users, giving operators the ability to tailor content and advertising packages for individual subscribers.
In sum, BBND is working on the system to co-opt IPTV, Cable Operators’ worst nightmare and most threatening competitor. The stock is cheap based on 2X 2008 revenues and 21x EPS for 2008.
BigBand is currently going through a technology and marketing maturation process and it may take a couple of quarters to start making a Big Bang again. I’m keeping my eye on it.
Disclosure: Author’s fund does not have a position in any of the stocks mentioned here as of 8/30/07.
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Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC. and a former equity analyst for a leading multinational hedge fund. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email zack@profile-financial.com
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