About Us

Harmonic Inc. (Nasdaq: HLIT) is redefining video delivery with the industry’s most powerful solutions for live and on-demand content preparation and distribution of video to TVs, PCs and mobile devices. Harmonic’s 20 years of technical innovation and market leadership enable the Company to offer a unique and comprehensive solution portfolio—including encoding, transcoding, content preparation, stream processing, asset management, edge processing, and delivery. Broadcast, cable, Internet, mobile, satellite and telecom service providers around the world choose Harmonic’s IP-based digital video, software, and broadband edge and access solutions. Using these award-winning and industry-leading solutions, operators can reduce costs and differentiate their services by offering consumers a higher quality, personalized multi-screen experience.

On May 6, 2010, Harmonic entered into a definitive agreement to acquire Omneon Inc., a privately-held company headquartered in Sunnyvale, California. The proposed acquisition of Omneon is intended to strengthen Harmonic’s competitive position in the digital media market and to broaden our relationships with customers who produce and distribute digital video content, such as broadcasters, cable channels and other major owners of content. The acquisition is also intended to broaden Harmonic’s technology and product lines with digital storage and play-out solutions which complement our existing video processing products.

Under the terms of the agreement, Harmonic would acquire Omneon for (i) $190 million in cash and (ii) 17.1 million shares of Harmonic common stock. This represents a total purchase value of approximately $274 million, based on the closing price of Harmonic common stock on May 5, 2010, net of cash to be acquired of approximately $32 million. The proposed acquisition is subject to the approval of Omneon’s stockholders, and to other customary closing conditions and regulatory approvals, and is expected to close in the third quarter of 2010.

Industry Trends

Cable, satellite (DBS), telecom, broadcast, Internet and mobile service providers who deliver video programming are engaged in intensifying competition to offer a more extensive, personalized and dynamic video experience to viewers. The increased competition is driven by a number of important industry trends:

• Increasing demand for personalized and time-shifted content is facilitated by the proliferation of digital video recorders and network-based video-on-demand (VOD) services.
• Growing popularity of high-definition television (HDTV) sets is driving the demand for additional HDTV content and higher quality video signals, as well as the initial rollouts of 3-D broadcasts.
• Emerging video distribution over the internet and mobile devices is changing traditional video viewing habits, distribution methods and the industry’s competitive landscape.
• Expanding on-demand, high-definition, Internet and mobile video services drive the need for more sophisticated video processing capabilities and greater network access bandwidth.
• The proliferation of digital video services worldwide, particularly in rapidly developing countries.

Growth Opportunities in Multiple Markets

Harmonic enables cable operators to offer bundled packages of digital video, voice and data services in order to obtain a competitive advantage over DBS, telecom and newly emerging video service providers and to create additional revenue streams. Cable operators continue to upgrade their networks in order to offer more digital channels and better picture quality, HDTV and interactive services such as VOD, high-speed Internet service residential telephony and business services. Cable operators have also begun introducing services which enable subscribers to access authorized programming on PCs and mobile devices. In order to provide these new services, operators are adopting bandwidth optimization techniques (such as switched digital video), new transmission standards (such as DOCSIS 3.0) and continually making enhancements to their optical networks.

Harmonic helps over 100 direct broadcast satellite operators worldwide to establish digital television services that can delivery several hundred channels of high-quality standard definition video and increasing numbers of HDTV channels. DBS services operate mostly in a one-way environment, with signals transmitted from an uplink center to a satellite and then beamed to dishes located at subscribers’ homes. DBS providers are seeking to protect and expand their subscriber base in a number of ways, such as making local channels available in major markets in standard definition and high definition formats. Continuing advances in digital video compression technology (such as MPEG-4) allow DBS operators to cost-effectively add new channels and expand their video offerings. Certain DBS operators have also entered into partnerships or acquisitions which provide terrestrial broadband services, allowing them to introduce interactive, on-demand and high-speed data services. Moreover, DBS operators have made acquisitions or introduced technologies that will allow subscribers to access certain programming on PCs and mobile devices.

Harmonic enables telephone service (telco) operators to deploy new video services, in part as a competitive response to increasing competition in their traditional data and voice markets. Their legacy networks have significant bandwidth constraints with respect to offering multi-channel video services, especially HDTV, across widespread geographic areas. Yet advanced video compression technology and improvements in DSL technology have allowed many telco operators to introduce competitive video services using Internet Protocol (IPTV). A few operators are also building out fiber networks, enabling the delivery of hundreds of video channels as well as very high-speed data delivery. Furthermore, increasing network capacity and the growing capabilities of smart phones are enabling major telcos worldwide to begin offering mobile video services to their subscribers.

Harmonic helps terrestrial broadcasters worldwide to convert from analog to digital transmission in order to free up spectrum, maximize their revenue streams and deliver new services, such as HDTV and high-speed data transmission. Network broadcasters and other video content programmers seek the most cost-effective way to manage the available bandwidth and transmit live programming to their studios and then to subsequently broadcast their content to cable, satellite, telecom and other operators for distribution to viewers. In addition, Harmonic has begun to address the emerging video processing opportunities with a variety of video content owners and aggregators that distribute video via traditional television services and/or directly over the Internet.

Products and Services

To address these evolving opportunities in different markets, Harmonic offers a variety of industry-leading systems, software and services.

Video Processing Products provide video delivery operators with the ability to acquire a variety of signals from different sources and in different protocols, and then organize, manage and distribute real-time and stored video content in ways that maximizes use of the available bandwidth. These products include:

• High performance encoders that compress video, audio and data channels to low bit rates while maintaining high video quality in the standard and high definition formats in both MPEG-2 and MPEG-4 video compression standards.
• Contribution and distribution encoders that provide broadcasters with video compression solutions for on-the-spot news gathering, live sports coverage and other remote events.
• Stream processing and statistical multiplexing solutions that enable operators to manage and organize digital streams in multiple formats.
• Content management applications that provide operators with a suite of integrated content preparation tools to create high-quality on-demand content for a variety of applications.
• Decoders and descramblers that allow service providers to acquire content delivered from satellite and terrestrial broadcasters.
• Video network management and control software.

Edge and Access Products enable cable operators to deliver customized broadcast or narrowcast on-demand and data services to their subscribers. These products include:

• Edge gateway (or EdgeQAM) devices that integrate routing, multiplexing and modulation into a single package for the delivery of narrowcast services, including video-on-demand applications, switched digital video and modular cable modem termination systems.
• Optical transmitters and amplifiers for long-haul and local transport.
• Optical nodes that support various fiber network architectures and configurable nodes to handle increasing two-way traffic without major reconstruction or replacement of the existing networks.

Technical and Support Services. Drawing upon its expertise in broadcast television, communications networking and compression technology, Harmonic provides a broad range of consulting, implementation and integration services to customers worldwide. These services include:

• Program management, budget analysis, technical design and planning, parts inventory management, building and site preparation, integration and equipment installation, end-to-end system testing, and comprehensive training.
• Maintenance and support services to customers under service level agreements which are generally renewed on an annual basis.

Revenue Mix

The Company has a broad and expanding base of domestic and international customers, which include leading cable, DBS, telecom, broadcast, Internet and mobile service providers