Scientific-Atlanta sees declining sales and profits

Scientific-Atlanta reported first-quarter results far short of Wall Street expectations. The company blamed the Adelphia scandal, MSOs’ reduction of capital investment and the decline in consumer spending for the disappointing sales of broadband equipment.

S-A posted earnings of $19.8 million, not including one-time items due to restructuring, down 43% from last year’s first quarter. Including those restructuring costs, S-A reported earnings of $11 million or 7 cents a share. Those meager profits were earned off of $311.6 million in sales, down 24% from the same period in 2001.

CEO Jim McDonald said during an earnings call last night after market close that despite bad conditions in the cable industry, S-A still remains profitable and the expansion of its digital customer base will allow the vendor to boost its revenues. In August, Cablevision announced it would incorporate the vendor’s digital technology into its cable broadband offering Interactive Optimum. The next month S-A delivered 60,000 Explorer 4200 modems to Cablevision along with associated head-end equipment.

But while S-A may be creating new channels it is losing others. Analysts point to lost sales with Time Warner cable as the country’s second largest MSO begins using Pace Micro Technology set-top boxes. In all, the vendor sold 546,000 set-top boxes and 101,000 cable modems.

McDonald said the company is going ahead with a restructuring plan announced in August, designed to eliminate 6% of S-A’s workforce and slash annual operating costs by $40 million. As part of the restructuring the vendor recorded a pre-tax charge of $8.7 million for the quarter.