Down is up for Scientific-Atlanta

Things are looking up at Scientific-Atlanta, despite a third-quarter earnings report that showed lower quarterly earnings. The cable TV equipment vendor posted fiscal third-quarter net income of $43.8 million compared to $76.2 million last year. Even so, this was reportedly better than analysts’ forecasts in a slumping cable TV economy that S-A Chairman-President-CEO Jim McDonald said “remains mixed.”

S-A is seeing an up tick in business as cable operators compete with a resurgent satellite TV industry and face the prospect of being forced to deliver advanced services, such as broadcast high definition. S-A shipped 38,000 high-definition-capable set-tops to six customers in North America during the quarter, “a nearly threefold increase … over the December quarter,” McDonald said.

More such shipments could be expected to “assist cable operators in their efforts to comply with FCC Chairman Michael Powell’s proposed voluntary plan for HDTV,” McDonald said.

Powell has suggested that cable operators offer five HDTV channels and provide subscribers with a set-top to receive and view HDTV programming.

“We believe that the move toward high-definition television favors cable operators, since they have more bandwidth available on their upgraded systems [than satellite providers],” McDonald said.

Operators, McDonald said, also realized “550 MHz is not enough to compete with satellite,” and S-A’s transmission business is seeing the result.

“Our access products, both RF and nodes, have seen strengthening demand, and digital transport was strong in the quarter,” McDonald said. “Higher service penetration rates, coupled with broader deployment of applications, will continue to drive the need for bandwidth” up to 750 MHz .

“There are a number of things around today that show that if you don’t have a system upgrade to 750 MHz you have a much higher loss of subscribers to satellite than if you have upgraded networks,” McDonald said.

Closer to home, S-A also expects to see increased demand for set-top boxes with hard drives to compete with satellite’s increased reliance on built-in personal video recording devices.

S-A, he said, is cautiously optimistic about the future, although McDonald would offer no forecast. Primary customers AOL Time Warner, Charter and Cox continued to provide more than 10% each of the company’s business, and “we had a modest upgrade of our activity with AT&T this quarter,” he said.