HLIT
#Okay.
<UNK>, I'll take that, and perhaps <UNK> will jump in.
Look, business is good with cable operators I guess is the headline there.
The dynamics on the two sides of our business are indeed different.
We've got a ---+ the market leading EdgeQAM platform.
Where EdgeQAMs are needed, we think we're winning the business.
And we had a modestly up quarter in legacy EdgeQAM.
That being said, cable operators are embarking on a big architectural transition.
And frankly, where possible, they're looking ahead with their investments to this next-generation CCAP.
And in our particular case, as we get closer and closer to general availability of our new CableOS platform, naturally, we see customers pulling back a little bit and waiting ---+ looking ahead to that platform.
So, that's what's behind the commentary about softening Cable Edge demand in the second half of the year as we transition from legacy EdgeQAM to our new CableOS launch.
And on the other side of the equation, things have been going well for us on the digital video front with cable operators.
And frankly, there was a real slowdown last year.
But, a combination of the UltraHD we were just talking about and some real significant advancements that we've made around compressing high-definition content and some of the interesting things we're doing around over the top, we've got good momentum with cable operators on the video front worldwide.
And of course, the subscription numbers that you've seen for cable as well as the broader pay TV space are not bad.
I think it's clear that the ---+ well, over the ---+ while the cord cutting is a threat, I think it's not one that is turning out on the short term to be that damaging to our service provider businesses, customers' businesses.
And they're responding to the threat.
So, we've seen a resurgence actually in spending not only in cable, but also in satellite direct to home as well as telecom.
And while our largest customers are notoriously reticent to allow publicity, I think you can go to some of the press releases we've made over the past couple of months, Claro in Chile, [America Mobile] operation, Airtel in India, in Finland a very significant over-the-top project, etc.
So, we see satellite direct to home as well as telecom operators following suit with cable and making investments and expanding and upgrading their video infrastructure.
So, just to add a few numbers to <UNK>'s comments, in quarter one and quarter two, we did ---+ quarter one, we did $17 million; quarter two, we did $19 million in our Cable Edge business.
And our guidance is $12 million to $14 million in Q3.
So, we had a strong first half.
Our initial guidance for the full year was $12 million to $14 million for the first three quarters.
So, again, the first half was stronger than we had initially anticipated.
And that's why we boosted our guidance from ---+ up by $5 million from our initial goals.
We do expect our Q4 Cable Edge business to tick back up again from the Q3 level that I just mentioned, primarily driven by just, again, the legacy sales that are fairly flat and level relative to Q3.
And then we are anticipating shipments of our new CableOS products in Q4.
So, we're looking for, again, an uptick as we exit the year in our Cable Edge business.
Okay.
Thank you.
Yes, I would say ---+ let me just start with the operating expenses because it's a little bit easier.
We closed TVN earlier than we anticipated.
We closed it in February as opposed to in Q2.
That added about $4 million to our operating expense guidance for the full year.
If you take that $4 million out of the equation, we were essentially right in line with our initial guidance.
So, OpEx, again, I think is straightforward.
On the gross margin side, we do expect to get in line with our initial guidance for our video business.
It fundamentally is tracking along that path now.
And as we get into the back half of the year and have full recognition with software revenue, we think we'll be, again, right in line with the initial guidance.
On the Cable Edge side, we gave guidance of 40% to 41% gross margin versus our initial guidance of 45% to 47%, primarily due to the mix.
The hardware mix is a bit stronger than we anticipated, although as I indicated during my prepared comments, we do believe that our license revenue will follow those hardware shipments as we head into 2017.
So, we're looking for an uptick from that standpoint again next year.
So, I would just summarize by saying that our video business is essentially right on track with our initial guidance, again, with the earlier closing of TVN taken into consideration.
And our Cable Edge business is tracking from a top-line standpoint, off slightly from a gross margin standpoint, again, due to the content of revenue that I just mentioned.
No.
Essentially, those were products that we had not had much activity on in their current configuration.
And to change that, we would've had to put R&D and additional sales focus on it.
And it just didn't make sense for us.
And it did not impact our overall plans for our Cable Edge revenue in 2016.
Well, I think there's a couple different ways to look at it, <UNK>.
The first one is that, as we exit Q4, we believe that will have a lower level in OpEx than we had in Q2 and in Q3.
So, we're going to have a lower level in Q4 as we exit the year, first point.
The second point, as a percent of revenue, our OpEx in Q3 and Q4 will be lower.
And particularly, in Q4, it will be at the ---+ probably I think the lowest point that Harmonic has had for OpEx as a percent of revenue in a number of years.
And I think the most important point is, with the operating expense run rate that we expect to have, we will be in a position to generate double-digit operating profit in 2017 without a significant increase in revenue.
So, I think the expenses are about where we targeted them to be.
And again, with the exit rate that we're planning for the year, we're going to be in great shape from a percent of revenue standpoint as well as generating double-digit operating profit heading into 2017.
Okay.
Well, thank you, all, very much for joining us.
We'll call it an afternoon there.
Please know that we're committed to continuing this momentum, looking forward to a good Q3, a good rest of the year.
We appreciate your continued interest and support.
Good day, everybody.
