Harmonic (HLIT) Q3 2026 earnings review
Harmonic raises its sales plan, but new orders fall behind
Harmonic, which sells broadband equipment and software to cable and fiber operators, grew rapidly as smaller customers stepped up their buying. Third-quarter revenue rose 64% from a year ago to $149 million, beating the company's own plan, while profit per share excluding one-offs more than tripled. Chief executive Nimrod Ben-Natan raised the full-year sales outlook for a third time, putting the fourth-quarter plan 12% above what the previous full-year forecast pointed to by our math.
| Broadband revenue | $148.8M +64% from a year ago |
|---|---|
| Rest-of-Market share of sales | 46% up from 37% last quarter |
| Profit per share, excluding one-offs | $0.23 up from $0.07 a year ago |
| Full-year revenue outlook | Raised $35M middle of the range: $550M (+53%) |
⚖️ Verdict: 🟢 Bullish
The story got better because sales outside the two biggest customers doubled and reached 46% of revenue, easing the risk that Harmonic relies too heavily on Comcast and Charter. Leftover overhead from the sold video unit also came in below plan, and gross margin cleared its target despite pricier memory chips. The bad news: new orders fell 27% from last quarter to $106 million, draining the order backlog by $54 million, while a nearly doubled inventory stockpile burned cash.
The question now is whether the third-quarter order dip marks the start of a customer spending pause or just normal lumpiness after big multiyear contracts. If operators are still expanding, fourth-quarter orders will rebound and turn the $95 million inventory pile into cash; if they are digesting past purchases, the backlog will keep shrinking. Fourth-quarter bookings and year-end inventory will tell.
🐂 Bull Case
Sales Outside the Top Two Customers Doubled
Harmonic sells broadband equipment and software to cable and fiber operators. A standing risk for the business is that two big customers — Comcast and Charter — buy more than half of everything it makes, while everyone else sits in a group the company calls Rest-of-Market. Chief executive Nimrod Ben-Natan said this smaller group drove a "breakout third quarter" as its sales more than doubled from a year ago.
- Rest-of-Market revenue: $68.7 million, up 101% from a year ago and up 39% from last quarter by our math
- Top two customers revenue: $80.1 million, up 42% from a year ago but down 5% from last quarter by our math
- Rest-of-Market share of total revenue: 46%, up from 37% last quarter
This shift matters because the top two customers paused their buying last year and caused a deep sales drop. In the second quarter those two buyers still made up 63% of revenue, so diversification lagged the rebound. This quarter smaller operators stepped up, and they also brought in over 60% of new orders.
What to watch: whether Rest-of-Market revenue stays above $65 million in the fourth quarter. Holding that level would show smaller operators are on a steady rollout rather than a one-quarter delivery spike.
Expense Control and Lower Leftover Costs Lifted Margins
Higher revenue carried Harmonic's profit margin much higher this quarter, and two cost worries from earlier in the year eased at the same time. The US company had warned that pricier memory chips would hurt gross margin in the second half, and that selling its video division in June would leave about $10 million of shared corporate bills — called stranded costs — sitting on the broadband business this year.
Instead, gross margin excluding one-offs reached 52.1%, beating the 51.0% to 52.0% plan and rising 5.2 percentage points from a year ago. Operating margin excluding one-offs doubled from 11.1% a year ago to 22.2%. By our math, research and development spending fell by 4.8 percentage points of revenue, and sales and administrative overhead dropped by 2.3 points. Leftover video costs were $1.5 million, down from $2.3 million last quarter.
What to watch: fourth-quarter gross margin excluding one-offs against the 51.0% to 52.0% plan. Clearing 52% again would show product mix is offsetting memory chip prices without waiting for next year's contract renewals.
🐻 Bear Case
Orders Fell Behind Sales and Drained the Backlog
Harmonic measures incoming customer orders as bookings, and unfulfilled orders plus upfront customer payments as backlog and deferred revenue. At the end of last year, a wave of multiyear orders lifted that backlog to $573.8 million. Over the first half of 2026, new orders roughly matched quarterly shipments, so the total backlog stayed near its peak.
In the third quarter, shipments ran well ahead of new orders. Bookings fell 26.6% from last quarter to $105.9 million, up 8.7% from a year ago by our math. That meant Harmonic booked $0.71 of new orders for every dollar of revenue it recorded, pulling backlog and deferred revenue down by $53.6 million to $534.0 million.
The drop matters because the fourth-quarter outlook calls for $141 million to $151 million in sales. Without a rebound in orders from the two biggest customers, the broadband specialist will keep eating into its order book to meet its quarterly sales targets.
What to watch: fourth-quarter bookings compared with revenue. Another quarter where orders trail shipments would leave the 2027 sales pipeline thinner just as year-over-year comparisons get tougher.
Software and Service Sales Dropped as Hardware Shipped
Ben-Natan highlighted new network software products this quarter, including cOS SensAI, a subscription service that uses artificial intelligence to manage broadband networks, and Recon, a tool built with Comcast to "detect and resolve network issues before subscribers are affected". The company also bought a "vendor-agnostic fiber management and provisioning platform company" to help operators run fiber equipment from different makers.
Those announcements contrast with the income statement. Hardware sales — which Harmonic calls appliance and integration — rose 80.1% from a year ago to $137.2 million by our math. Meanwhile, software and service revenue fell 18.6% from a year ago and 29.2% from last quarter to $11.7 million, its lowest mark in the past two years. The hardware surge is not yet pulling software subscriptions along with it.
What to watch: fourth-quarter software and service revenue. A return toward the second quarter's $16.4 million level would show the third-quarter drop was a timing quirk rather than customer pushback on software fees.
Inventory Nearly Doubled and Consumed Cash
To supply its hardware rollout and guard against component shortages, Harmonic has been buying parts well ahead of delivery. Since the end of December, inventory on the balance sheet has nearly doubled from $47.8 million to $94.8 million, rising 42.7% in the third quarter alone by our math.
That stockpiling absorbed the cash that higher profits would otherwise generate. Over the first nine months of 2026, inventory additions took $51.5 million of cash, and unpaid customer bills took another $35.5 million. As a result, by our math the company burned about $5.1 million of free cash flow in the third quarter despite reporting $25.1 million in profit excluding one-offs.
What to watch: inventory levels at year-end. If fourth-quarter shipments do not bring the $94.8 million stockpile down, the company carries the risk of holding excess hardware if operator spending slows next year.
👓 Other Themes
Video Sale Cash Paid Down Debt and Funded a Deal
After collecting $132.0 million in net cash from selling its video unit in June, Harmonic put the money to work in the third quarter. The company repaid $75 million on its credit line, cutting total debt by 67.1% from last quarter to $36.4 million by our math. It also spent $1.8 million upfront on its fiber software acquisition and used $3.6 million to buy back shares.
💲 Other KPIs
Unpaid customer bills — accounts receivable — climbed 30.3% from last quarter and 36.3% since December by our math, outpacing the 11.5% quarterly rise in revenue. The jump indicates that a large share of third-quarter hardware shipments went out late in the period, delaying cash collection into the fourth quarter.
Harmonic added six broadband operators to its core cOS virtual network software this quarter, up from 161 in the second quarter and 150 in the first. Those networks now connect 52.6 million customer modems and fiber boxes, adding 4.4 million devices since July.
The diluted share count fell 2.7% from 113.3 million a year ago following first-quarter stock buybacks, but rose slightly from 109.7 million in the second quarter as employee stock grants outweighed the $3.6 million of third-quarter repurchases.
🔮 Guidance
Raised. The middle of the full-year sales plan moved up $35 million to $550 million, which points to 52.6% growth from last year by our math. This is the third raise this year, and each increase has been larger than the one before: +$25 million in the first quarter, +$30 million in the second, and +$35 million now.
Raised. The fourth-quarter sales plan calls for $146 million at the middle of the range, up 48.6% from a year ago and down 1.9% from the third quarter by our math. That midpoint sits $16.2 million above what the previous full-year plan left for the fourth quarter. If Harmonic's 13.2% average quarterly beat over the last year holds, fourth-quarter sales would reach about $165 million.
Raised. The full-year gross margin outlook excluding one-offs moved up 0.75 percentage points at the middle of the range to 52.25%. For the fourth quarter, the US company plans for 51.0% to 52.0%, matching the target it set for the third quarter.
Raised. Full-year operating profit excluding one-offs rose $16 million at the middle of the range to $121 million, helped by higher sales and a $2.4 million cut to expected full-year leftover video costs (now $7.6 million). Fourth-quarter operating profit is planned at $28 million to $34 million, or a 21.2% margin at the middle of the range by our math.
Raised. Full-year profit per share excluding one-offs moved up 11 cents at the middle of the range to $0.82, more than tripling last year's $0.23. The fourth-quarter plan calls for $0.19 to $0.23 per share on 109.2 million diluted shares.
Raised. The GAAP operating profit outlook climbed $16 million at the middle of the range to $96 million. For the fourth quarter, the plan calls for $22 million to $28 million.
Raised. The full-year GAAP profit per share outlook rose seven cents at the middle of the range to $0.555, even with the full-year GAAP tax rate projection ticking up from 30.0% to 31.0%. Fourth-quarter GAAP profit per share is planned at $0.13 to $0.16.
❓ Key Questions
Why did software and service sales fall 29% from last quarter?
Software and service revenue dropped from $16.4 million in the second quarter to $11.7 million in the third, even as Harmonic launched its cOS SensAI subscription service. The release does not explain whether service contracts lapsed or software billing timing shifted.
What share of the $534 million backlog sits due within 12 months?
Last quarter, the company disclosed that 73% of its $587.6 million backlog was scheduled to ship within a year. The press release did not update that percentage after the backlog dropped by $53.6 million.
When will the $94.8 million inventory stockpile turn back into cash?
Inventory has nearly doubled since December and rose another $28.4 million this quarter, causing free cash flow to turn negative despite high profits. Investors need to know whether fourth-quarter shipments will shrink the stockpile.
What revenue or recurring software targets came out of Investor Day?
Ben-Natan noted that September's Investor Day outlined plans to expand addressable markets with fiber and network intelligence tools. The release gives no dollar figures for fiber revenue or software recurring revenue.