Harmonic (HLIT) 8-K Harmonic Announces First Quarter Results

Exhibit 99.1

Harmonic Announces First Quarter Results

Continued Success of New Products;
Strengthening of Technology Leadership

SUNNYVALE, Calif.¾April 25, 2007¾Harmonic Inc. (NASDAQ: HLIT), a leading provider of broadcast and on-demand video delivery solutions, today announced its preliminary results for the quarter ended March 30, 2007.

For the first quarter of 2007, the Company reported net sales of $70.2 million, up 25% from $56.2 million in the first quarter of 2006. During the first quarter of 2007, the Company experienced continued strong demand from its domestic cable customers, as well as penetration of new telco and satellite customers worldwide. International sales represented 40% of net sales for the first quarter of 2007, compared to 54% in the same period of 2006 and 41% in the fourth quarter of 2006.

Gross margins in the first quarter of 2007 were significantly higher than in the same period of 2006 due to more favorable gross margins from the sale of new products and increased manufacturing volumes. However, gross margins for the quarter were lower than anticipated as a result of an unusually high proportion of edge and access product revenue, which carries lower margins than other product lines. Edge and access products, video processing products and software and services represented 51%, 37% and 12% of revenue, respectively, in the first quarter. Because orders for video processing products exceeded those of edge and access products in the first quarter, the Company anticipates improved gross margins in coming periods.

In addition to its previously announced decision to discontinue a product line and shut down its manufacturing operations in the UK, the Company decided to close its remaining research and development activities in the UK in order to further reduce operating expenses. As a result, the Company incurred a charge of $1.8 million in the first quarter related to severance costs, excess facilities charges and remaining inventories.

GAAP net income for the first quarter of 2007 was $1.0 million, or $0.01 per diluted share, compared to a GAAP net loss of $5.1 million, or $0.07 per share, for the same period of 2006. Excluding the charge and accounting charges for stock-based compensation expense and the amortization of intangibles, the non-GAAP net income for the first quarter of 2007 was $5.3 million, or $0.07 per diluted share, compared to a non-GAAP net loss of $3.3 million, or $0.04 per share, for the same period of 2006. See “GAAP to non-GAAP Income/(Loss) Reconciliation” below for further information on the Company’s non-GAAP measures.

As of March 30, 2007, the Company had cash, cash equivalents and short-term investments of $82.9 million, compared to $92.4 million at the end of 2006. During the first quarter of 2007, the Company utilized its cash resources to increase inventories for some of its newest products and to reduce by $2.4 million pre-merger liabilities related to its DiviCom acquisition in 2000.

“We are pleased with our solid sales performance in the first quarter of 2007, which is typically the slowest period of the year,” said Patrick Harshman, President and Chief Executive Officer. “During the quarter, we saw increased shipments to domestic cable customers for our video-on-demand edge and optical access products, as well as substantial orders for our new high-definition and standard-definition encoders and stream processing solutions. While our product mix led to reduced margins in the first quarter, we expect gross margins to improve in coming periods, as we continue to move forward on a number of significant video processing deployments.”

“Our powerful MPEG-4 AVC and MPEG-2 high-definition video encoding products continue to win in competitive evaluations, reinforcing our leadership in the IPTV market and helping us regain our

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leadership position with satellite operators both domestically and internationally. We have also continued to extend our technology leadership with the recent introduction of a number of exciting new software solutions. These include significant enhancements to our suite of on-demand solutions, which is generating growing interest among a variety of operators. While it remains difficult to predict the timing of customer deployments, particularly in the emerging IPTV market, we are very encouraged by the success of our new products, the continued expansion of our customer base and the promising opportunities for growth in 2007 and beyond.”

Business Outlook

The Company anticipates combined net sales for the second and third quarters of 2007 to be in a range of $140 to 150 million and gross margins to be 44% to 45% on a non-GAAP basis, excluding stock-based compensation expense and the amortization of intangibles. GAAP gross margins for the same period are anticipated to be in a range of 42% to 43%.

Conference Call Information

Harmonic will host a conference call today to discuss its financial results at 2:00 p.m. Pacific (5:00 p.m. Eastern). A listen-only broadcast of the conference call can be accessed on the Company’s website atwww.harmonicinc.com or by calling +1.617.597.5396 (participant code 46674276). The replay will be available after 5:00 p.m. Pacific at the same website address or by calling +1.617.801.6888 (participant code 86004156).

About Harmonic Inc.

Harmonic Inc. is a leading provider of versatile and high performance video solutions that enable service providers to efficiently deliver the next generation of broadcast and on-demand services including high definition, video-on-demand, network personal video recording and time-shifted TV. Cable, satellite, broadcast and telecom service providers can increase revenues and lower operational expenditures by using Harmonic’s digital video, broadband optical access and software solutions to offer consumers the compelling and personalized viewing experience that is driving the business models of the future.

Harmonic (NASDAQ: HLIT) is headquartered in Sunnyvale, California with R&D, sales and system integration centers worldwide. The Company’s customers, including many of the world’s largest communications providers, deliver services in virtually every country. Visit www.harmonicinc.com for more information.

Legal Notice Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements related to our expectation that our gross margins will improve in the coming periods; our beliefs regarding the success and leadership of our encoding and software solutions; our expectations regarding the contribution of new video processing deployments to our margins; our beliefs about the success of our new products, the continued expansion of our customer base and the promising opportunities for growth in 2007 and beyond; our expectation that our combined net sales for the second and third quarters of 2007 will be in the range of $140 to $150 million, our gross margins will be 44% to 45% on a non-GAAP basis, excluding stock-based compensation expense and the amortization of intangibles, and our GAAP gross margins for the same period will be in a range of 42% to 43%. Our expectations and beliefs regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include the possibility that our encoding and software solutions will not generate sales that are commensurate with our expectations, and that we will not be able to successfully transition sales to higher-margin products; delays or decreases in capital spending in the cable, satellite and telco industries, customer concentration and consolidation, general economic conditions, market acceptance of new or existing Harmonic products, losses of one or more key customers, risks associated

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with Harmonic’s international operations, inventory management, the effect of competition, difficulties associated with rapid technological changes in Harmonic’s markets, the need to introduce new and enhanced products, and risks associated with a cyclical and unpredictable sales cycle. The forward-looking statements contained in this press release are also subject to other risks and uncertainties, including those more fully described in Harmonic’s filings with the Securities and Exchange Commission, including our Annual Report filed on Form 10-K for the year ended December 31, 2006, and our current reports on Form 8-K. Harmonic does not undertake to update any forward-looking statements.

Editor’s Note: Product and company names used here are trademarks or registered trademarks of their respective companies.

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Harmonic Inc.
Condensed Consolidated Balance Sheets
(In thousands)

	March 30, 2007			December 31, 2006
	(Unaudited)			(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	26,565		$	33,454
Short-term investments		56,291			58,917
Accounts receivable, net		58,421			64,674
Inventories		46,685			42,116
Prepaid expenses and other current assets		10,804			12,807
Total current assets		198,766			211,968
Property and equipment, net		14,620			14,816
Goodwill, intangibles and other assets		54,133			55,178
	$	267,519		$	281,962
Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt	$	—		$	460
Accounts payable		25,228			33,863
Income taxes payable		8,934			7,098
Deferred revenue		22,527			29,052
Accrued liabilities		38,974			44,097
Total current liabilities		95,663			114,570
Accrued excess facilities costs		15,140			16,434
Other non-current liabilities		6,792			5,824
Total liabilities		117,595			136,828
Stockholders’ equity:
Common stock		2,084,779			2,078,941
Accumulated deficit		(1,934,767	)		(1,933,708	)
Accumulated other comprehensive loss		(88	)		(99	)
Total stockholders’ equity		149,924			145,134
	$	267,519		$	281,962

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Harmonic Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

	Three Months Ended
	March 30, 2007		March 31, 2006
Net sales	$	70,236	$	56,221
Cost of sales		43,056		36,341
Gross profit		27,180		19,880
Operating expenses:
Research and development		11,044		9,948
Selling, general and administrative		15,727		15,713
Amortization of intangibles		111		91
Total operating expenses		26,882		25,752
Income (loss) from operations		298		(5,872	)
Interest and other income, net		973		900
Income (loss) before income taxes		1,271		(4,972	)
Provision for income taxes		231		175
Net income (loss)	$	1,040	$	(5,147	)
Net income (loss) per share
Basic	$	0.01	$	(0.07	)
Diluted	$	0.01	$	(0.07	)
Shares used to compute net income (loss) per share:
Basic		78,963		74,102
Diluted		80,076		74,102

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Harmonic Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

	Three Months Ended
	March 30, 2007			March 31, 2006
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	1,040		$	(5,147	)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Amortization of intangibles		1,075			250
Depreciation		1,596			2,170
Stock-based compensation		1,284			1,627
Changes in assets and liabilities:
Accounts receivable		6,253			(186	)
Inventories		(4,553	)		7,324
Prepaid expenses and other assets		1,959			183
Accounts payable		(8,635	)		(2,933	)
Deferred revenue		(5,252	)		(3,144	)
Income taxes payable		(266	)		77
Accrued excess facilities costs		(1,144	)		(1,193	)
Accrued and other liabilities		(5,547	)		(1,575	)
Net cash used in operating activities		(12,190	)		(2,547	)
Cash flows provided by investing activities:
Purchases of investments		(22,165	)		(18,609	)
Proceeds from sale of investments		24,800			24,259
Acquisition of property and equipment, net		(1,400	)		(1,593	)
Net cash provided by investing activities		1,235			4,057
Cash flows from financing activities:
Proceeds from issuance of common stock, net		4,537			2,073
Repayments under bank line and term loan		(460	)		(220	)
Repayments of capital lease obligations		(21	)		(20	)
Net cash provided by financing activities		4,056			1,833
Effect of exchange rate changes on cash and cash equivalents		10			(38	)
Net increase (decrease) in cash and cash equivalents		(6,889	)		3,305
Cash and cash equivalents at beginning of period		33,454			37,818
Cash and cash equivalents at end of period	$	26,565		$	41,123

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Use of Non-GAAP Financial Measures

In establishing operating budgets, managing its business performance, and setting internal measurement targets, the Company excludes a number of items required by GAAP. Management believes that these accounting charges and credits, most of which are non-cash or non-recurring in nature or affect the period-to-period comparability of results, are not useful in managing its operations and business. Historically, the Company has also publicly presented these supplemental non-GAAP measures in order to assist the investment community to see the Company “through the eyes of management,” and thereby enhance understanding of its operating performance. The non-GAAP measures presented here are gross margins, operating expense, net income/(loss) and net income/(loss) per share. The presentation of non-GAAP information is subject to material limitations, is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP and is not necessarily comparable to non-GAAP results published by other companies. A reconciliation of non-GAAP net income/(loss) to GAAP net income/(loss) is included with the financial statements contained in this press release. The non-GAAP adjustments described below have historically been excluded from our non-GAAP measures. These adjustments, and the basis for excluding them, are:

• Restructuring Activities

– Severance Costs

The Company has incurred severance costs in cost of sales and in operating expenses in connection with the closing of its manufacturing and research and development facilities in the UK. The Company excludes one-time costs of this nature in evaluating its ongoing operational performance. We believe that these costs do not reflect expected future expenses nor do they provide a meaningful comparison of current versus prior operating results.

– Excess Facilities

The Company has incurred excess facilities costs in operating expenses due to the closing of its manufacturing and research and development facilities in the UK. The Company excludes one-time costs of this nature in evaluating its ongoing operational performance. We believe that these costs do not reflect expected future expenses nor do they provide a meaningful comparison of current versus prior operating results.

– Product Discontinuance

In connection with the restructuring of its operations in the UK, the Company recorded charges for excess inventory in connection with discontinued products. The Company excludes one-time costs of this nature in evaluating its ongoing operational performance. We believe that these costs do not reflect expected future expenses nor do they provide a meaningful comparison of current versus prior operating results.

• Non-Cash Items

–

Stock-Based Compensation Expense

Harmonic has incurred stock-based compensation expense in cost of sales and operating expenses as required under FAS 123R. The Company excludes stock-based compensation expense because it believes that this measure is not relevant in evaluating its core operating performance, either for internal measurement purposes or for period-to-period comparisons and benchmarking against other public companies.

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–

Impairment and Amortization of Intangibles

The Company has incurred amortization of intangibles, included in gross margins and operating expenses, related to acquisitions. Management excludes these items when it evaluates its core operating performance. We believe that eliminating this expense is useful to investors when comparing historical and prospective results and comparing such results to other public companies since the amortization of intangibles will vary if and when the Company makes additional acquisitions.

Harmonic Inc.
GAAP to Non-GAAP Income (Loss) Reconciliation
(Unaudited)

	Three Months Ended March 30, 2007							Three Months Ended March 31, 2006
	Gross		Operating			Net Income		Gross		Operating			Net Income
(In thousands, except share data)	Margin		Expense			(loss)		Margin		Expense			(loss)
GAAP	$	27,180	$	26,882		$	1,040	$	19,880	$	25,752		$	(5,147	)
Cost of sales related to severance costs		188					188
Cost of sales related to product discontinuance		772					772
Cost sales related to stock based compensation expense		180					180		274					274
Research and development expense related to severance costs				(334	)		334
Research and development expense related to stock based compensation expense				(442	)		442				(522	)		522
Selling, general and administrative expense related to severance costs				(131	)		131
Selling, general and administrative expense related to stock based compensation expense				(663	)		663				(831	)		831
Selling, general and administrative expense related to excess facilities costs				(439	)		439
Amortization of intangibles		964		(111	)		1,075		158		(91	)		249
Non-GAAP	$	29,284	$	24,762		$	5,264	$	20,312	$	24,308		$	(3,271	)
GAAP income (loss) per share – basic and diluted						$	0.01						$	(0.07	)
Non-GAAP income (loss) per share – basic and diluted						$	0.07						$	(0.04	)
Shares used in per-share calculation – basic							78,963							74,102
Shares used in per-share calculation – diluted							80,076							74,102

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