Harmonic Inc (HLIT) 2004 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to your Q4 2004 Harmonic earnings conference call.

My name is Carlo and I will be your coordinator for today's presentation.

At this time, all participants are in a listen-only mode.

We will be facilitating a question-and-answer session toward the end of the prepared remarks.

If at any time during this call you require assistance, feel free to press star 0 and a coordinator will be happy to assist you.

I would now like to turn the presentation over to the host of today's call, Mr. Tony Ley, Chairman, President, and CEO.

Please proceed, sir.

Good afternoon.

I am Tony Ley, President and CEO of Harmonic.

With me in our headquarters in Sunnyvale, California, are Robin Dickson, our Chief Financial Officer, and Michael Newman, our Investor Relations spokesman.

Thank you all for joining us.

Today we announced our results for the fourth quarter and the year 2004.

We are very pleased with our strong sales and growth in gross margins and earnings for the quarter and for the year.

During 2004 we made significant progress towards our long-term objective of diversifying our business across different markets.

Driven by the intensifying competition between cable satellites and telco operators.

We are also encouraged by our stronger international business.

Additionally, during the fourth quarter we made our first volume shipments of fiber optic products for FTTP applications, and we continued working with both domestic and international telcos to introduce video solutions and the next generation compression standards.

We are also working with our worldwide satellite customers, our new technology for [Roms] Kodaks and new IP applications.

And our cable customers are starting to use our digital head end systems for simulcasting, which permits the transmission of high quality TV channels and helps reclaim bandwidth for more high definition channels, video-on-demand, and IP services.

So at this point, I will ask Robin to cover all the financial details of the quarter and then I will discuss our general progress in the quarter and some of the exciting trends in our markets.

Robin?

Thank you, Tony, and good afternoon, everyone.

During this call we may make projections and other forward-looking statements regarding future events or the future financial performance of the Company.

We must caution you that such statements are only predictions and that actual events or results may differ materially.

We refer you to the documents that the Company files with the SEC, including our most recent 10-K and 10-Q reports.

These documents identify important risk factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.

On this call we will also provide you with financial metrics determined on a non-GAAP or pro forma basis.

These items, together with the corresponding GAAP numbers a reconciliation to GAAP, are contained in today's earnngsearnings press release, which we have posted on our website and filed with the SEC on form 8-K.

We will also discuss historical, financial, and other statistical information regarding our business and operations.

Some of this information is included in our press release and the remainder of the information will be available in a recorded version of this call on our website.

Today we announced our unaudited results for the quarter and year-ended December 31, 2004.

The results are in line with our preliminary estimates of net sales announced on January 13th.

For the fourth quarter of 2004, we reported net sales of 85.6 million, up 69 percent from 50.6 million in the previous quarter, and up 52 percent from 56.3 million in the fourth quarter of 2003.

For the full year 2004, we reported net sales of 248.3 million, up 36 percent from 182.3 million in 2003.

Our Convergence Systems division, which designs, manufacturers, and markets digital head end systems, had divisional net sales of 67.7 million, up from 33.2 million in the fourth quarter of '03, and up from 34.6 million in the third quarter of '04.

For the full year, convergence systems represented 69 percent of our total sales.

In 2004, the strong performance in Convergence Systems was driven by higher shipments of encoders and other digital products to our worldwide cable, satellite, and Telco customers.

Our Broadband Access Networks division which designs, manufactures, and markets fiber optic products, had divisional net sales of 17.9 million in the fourth quarter of '04, compared to 23.1 million in the fourth quarter of '03, and 16 million in the third quarter of '04.

And for the full year, BAN represented 31 percent of our total sales.

Our BAN business benefits from our domestic cable customers need to support new services such as telephony and business services, as well as new international network builds and upgrades.

And, of course, BAN is also heavily involved in the design and rollout of fiber to the Premises Networks at home and abroad.

In the fourth quarter we had three 10 percent customers: Comcast at 23 percent, Cable Vision at 16 percent, and Charter at 11 percent.

And for the full year, Comcast represented 17 percent of total sales.

We're also pleased with the results of our international business in a number of regions, especially more recently in Europe.

International represented 36 percent of total sales for the fourth quarter and 42 percent for the full year of 2004, up from 30 percent and 29 percent, respectively, for the same periods in 2003.

By market segment, our Q4 sales to cable customers represented 56 percent of total revenue, satellite customers represented 29 percent, and other markets, including the telco market, represented 15 percent.

However, I must emphasize, as I have before, that our Telco business is still relatively new and likely to be lumpy as this market is still in its early stages.

Our substantial improvement in gross margins is due to heavier concentration of Convergent Systems revenue, increased overall sales volume, and the successful transition of our contract manufacturing.

On a non-GAAP basis we achieved gross margins 47 percent for the fourth quarter, and 43 percent for the full year of 2004, up from 40 and 35 percent, respectively, for the same periods in 2003.

In the near term, we don't expect to sustain gross margins at the fourth quarter level, but we do continue to target gross margins of around 45 percent.

Our non-GAAP operating expenses were 27.9 million for the fourth quarter of 2004, up on a sequential basis from 22.8 million in the third quarter.

This is a significant increase primarily reflecting the impact of performance-based incentive plans and the very substantial cost of complying with new regulations, especially Section 404 of Sarbanes-Oxley.

And we estimate that the out-of-pocket cost of our external audit, combined with consulting resources for Section 404 compliance, will be in the vicinity of 2 to $2.5 million for 2004, compared to external audit fees of $500,000 in 2003.

Over 1 million of this was booked in the fourth quarter alone, as the full cost of implementation and compliance became apparent.

To complete the picture on the higher operating expenses, we also had more employees at the year's end; we were at 589, up 14 from the end of September.

And in 2005, we expect to continue to hire in key strategic areas.

In spite of the higher operating expenses, the revenue level and gross margin improvement made a very positive impact on the bottom line.

Our non-GAAP net income for the fourth quarter of '04 was 12.7 million, or $0.17 per fully diluted share, compared to 1.2 million or $0.02 per share for the same period of '03.

For the full year of 2004, non-GAAP net income was 11.4 million, or $0.16 per fully diluted share, compared to a net loss of 18.8 million, or $0.30 per share in 2003.

We have excluded from these non-GAAP results a credit of $1 million in the fourth quarter related to the sale of previously reserved inventory as well as noncash accounting charges of 3.5 million for the amortization of intangible assets.

Including these items, the GAAP net income for the fourth quarter was $10.2 million, or $0.14 per diluted share, up from 1.4 million, or $0.02 cents per share for the same period of '03.

And for the full year, GAAP net income was 1.6 million, or $0.02 per diluted share, up from a net loss of 29.4 million, or $0.47 per share in '03.

Once again, a reconciliation between GAAP and non-GAAP results is in our press release on our website and in our 8-K filing today with the SEC.

Turning to the balance sheet, we had cash, cash equivalents, and short-term investments of 100.6 million at the year end, up from 89.4 million at the end of the previous quarter.

Receivables were 64.1 million, up from 43.3 million at the end of Q3, but with DSOs coming down to 67 days.

Inventory was 41.8 million, up from 38 million at the end of Q3, keeping us well-positioned to satisfy customer requirements.

Now, capital spending was approximately 2.5 million in Q4, and 6.5 million for the full year.

We expect CapEx for 2005 to be about 8 million.

Excuse me one second.

In summary, we're very pleased to have our strong performance in the fourth quarter, capping a year in which revenue grew by 36 percent.

We continue to see healthy demand, worldwide, across our different market segments.

We believe that our growing percentage of revenue from convergent systems, whose products are primarily deployed indoors, moderates our historical seasonal slowdown in the first quarter.

As we think about Q1 revenues, I think we need to look back to the third and fourth quarter.

Our $51 million revenue in Q3 was a miss of about $8 to 10 million due to two big orders, which were received very late in the quarter.

Our 85.6 million in Q4 included all of the revenue from these orders, and so I would encourage you to think of Q4 really as a 75 million, rather than as an $85 million quarter.

So with this in mind, but with continuing good order input in Q4 and so far in Q1, but still with some seasonality, we are expecting first quarter revenue to be in a range of 70-75 million, with our expectations for the first six months around 150 million.

Based on this revenue range for Q1, our non-GAAP net income for Q1, excluding the amortization of intangibles, is expected to be in a range of $0.07 - $0.11, with GAAP net income expected to be between $0.02 and $0.06.

Just finally, a word of caution on cash.

We expect to pay out approximately $6 million of our DiviCom tax liabilities in Q1, so you should not expect the levels of cash flow that we had in Q4.

As we think about the full year, the most difficult element to predict is the timing and the scale of telco customer deployments.

In addition, the impending migration to next generation compression standards adds another level of uncertainty, especially about the timing of telco orders.

Nevertheless, we believe that we are off to a good start to the year, that Harmonic is in an excellent position to benefit from intensifying competition among our customers, and that we are in a good financial position to capitalize on these opportunities.

That's all from me.

Tony?

Thanks.

Well, for some time now, one of our strategic goals has been expansion of our business into multiple markets.

During 2004, we made excellent progress towards this objective.

The increasing competition between cable satellite and telecom operators is driving investment in our technology and further diversifying our business.

Cable continued to be the largest market segment in our business in 2004.

Now cable customers are driving towards the rollouts of the full triple play of video, voice, and data services.

They are now much more focused on picture quality and channel array as they see the competition in video gaining strength.

Our digital head ends enable them to simulcast high quality digital channels, and this is a first step towards reclaiming band width used for analog channels, allowing for more high definition channels, video-on-demand, and other services.

Domestic cable MSOs continue to extend the capability of their networks by node splitting and deploying the corresponding head end optical transmitters, and we expect this trend to accelerate with the rollouts of voice services.

Abroad, we see the same drivers with the addition of new builds in less developed countries.

Cable in many countries sees business services as a potential revenue stream, and we're pleased with the progress of our sales for this application in 2004.

The satellite market remained our second largest business segment in 2004, and in video, it remains the most important as the driver for our technology in video compression.

The technical challenges are tough, as our satellite customers continue to provide more standard definition channels and increase the deployment of high definition and local channels.

The improvement of our MPEG-2 encoding efficiency permits our customers to transmit more channels over the existing satellites and frees our bandwidth for high definition.

In coming periods, we expect to see continued shipments of our high performance encoders and related systems to our worldwide satellite customers, and we will continue to work with them to offer more high definition channels using next generation compression standards.

Perhaps the biggest story of 2004 was seeing telco operators begin investing in video services, which represents a small yet growing proportion of our business.

The most rapid entry point is sending video over DSL, and we saw a great deal of activity using this architecture.

A number of international telcos began deploying video-over-DSL using our high performance MV100 encoders, which can, of course, be upgraded to next generation compression standards.

Now, encoders are currently deployed by telcos to provide video-over-DSL in the United Kingdom, France, Japan, and Canada, and we have secured a number of orders in other countries.

During the fourth quarter, we shipped encoders to a European telco customer for MPEG-4 deployment.

In the domestic telco market, we are actively engaged with telcos on fiber to the premises and other architectures to offer digital video, which creates a new market for both our optical transmission and our digital head end products.

During the fourth quarter we made our first volume shipments of fiber optic products for FTTP applications.

We expect to have more significant revenues from domestic telcos in 2005.

During this year, we anticipate continuing to help our customers across different markets prepare for the new Kodak.

Our own V100 encoding platform can run both VC-1 and MPEG-4 to compress video and realtimereal-time, and seamlessly interoperates with incoming third party's set-top boxes.

While our MV100 has set the benchmark for today's MPEG-2 bit rate efficiency and video quality, it also provides a straightforward path to the next generation standards, which we expect, over time, will effectively double the number of channels.

This has significant implications for all of our customers, but particularly for satellite and telco operators as they compete to offer more high quality digital channels in both standard definition and bandwidth intensive high definition.

We fully expect several of our customers will begin migrating to next generation compression standards towards the end of 2005.

In summary, while the timing of customer deployments remains difficult to predict, particularly in the telco market, the overall industry trends are increasingly positive and we're expecting a strong first quarter of 2005.

We continue to see the struggle for subscribers between cable and satellite operators and to see major telco operators beginning to offer digital video services.

We are particularly encouraged by the continued diversification of our customer base and strength of our international business.

We also believe with our customers across different markets see us as a technology leader in their future migration to next generation compression.

We are very upbeat about our progress in 2004, our prospects in 2005, and our long-term growth opportunities.

This concludes the formal part of our presentation.

And now, Robin and I will be pleased to entertain any questions you may have.

Thank you, sir. [Operator Instructions].

Sir, the first question is from the line of Chet White with Merriman, Tieren, Ford & Company.

Hi, thank you very much and congratulations on a very nice quarter.

Thank you, Chet.

I was hoping you could just give a couple data points to help quantify -- I know it is early -- but to help quantify the telco on the quarter.

As I recall in Q3, it was about 22 percent, up from 4 percent in Q2.

And then, maybe, if there is some broad range that you could give for what it might be in ‘05, I know it is uncertain, so maybe a range is possible.

And potential quantification of what type of top 20 telcos are active these days that could come over the fence and deploy programs, just to give us some scope and scale, and ranges are fine since I know it is uncertain.

Chet, in Q4 our other markets, which are principally telco markets, represented about 15 percent of revenue.

And that's down from Q3 because we had two very large projects in Q3, and I think that's just, again, the nature of the way this business is going to be for a little while.

I will let -- I guess I will let Tony address the other part of the question.

Just with respect to 2005, though, I think as we tried to say here, it is really very difficult to try to put ranges on what we think the telco business is going to be.

There are just too many unknowns and it is just too early stage for us to be able to put any numbers on it.

And to follow-up on that, you know as much as I do about activity in places like SBC and Bell South and Verizon.

And, of course, the difficult thing is to judge when that is going to result in these people building their systems and getting moving.

It is definitely going to happen.

Whether it happens in the middle of the year or later in the year, the beginning of the year after, is still, I think, a very open question.

And from our point of view, the rest of our business, of course, is international.

We have seen a lot of activity, as you know, in Canada and in Japan, other parts of Europe and South America.

And we do believe this will continue.

But of this business we are very hesitant to put a range.

We, ourselves, have great difficulty in predicting the timing of when these operators will make a decision.

And I think the reason for that is simply that this is new business for them; they can get very excited about the beginning.

But as they start to get into this business, they find there is a lot they have both to learn and then to do, to put a system together.

And are MPEG-4 standards and set tops a potential catalyst once that hits the mainstream of the market with several set top choices available?

Or is it a lot of other things included?

Well, I think for greenfield applications such as telco's, many of them are going to wait for the new standards;

MPEG-4, obviously, one, and particularly those that are going to use DSL links.

I think they will have all some part of their application on DSL.

The other architecture, which involves the RF overlay of the fiber, there the bandwidth is such that they can happily go on with MPEG-2.

But I do think that most of the deployments will be in telco, simply because they have the time -- by the time they are ready, the MPEG-4, VC-1 will be very well developed.

They are going to wait, I think, on that.

I see.

Thank you very much.

Sir, our next question is from the line of Brian Coin with Friedman, Billings, Ramsey.

Hi, guys.

Just a couple questions.

First of all, could you just talk a little about -- I know you touched on here just a moment ago -- but a little more sense about what you are seeing, perhaps, at Verizon, with regard to their fiber plans and specifically on the RF infrastructure side?

I mean, I'm trying to get a sense as to what likelihood you think that they will do an RF overlay in their entire footprint?

It is very hard to know what Verizon is really going to do.

But I would suggest that in greenfield sites, I think they made the statements they are going to put in the fiber to the premises in built-up areas, or as they have already, I would imagine they are going to employ video-over-DSL.

It simply is not economic to dig up the streets of Manhattan to build a new system if you can put it over fiber.

And situations and so on where the construction costs will be immense and they already have systems, I'm sure that they will probably use the DSL.

So you are going to find in telcos that rollout fiber to the premises, I'm sure you're going to have a mixture of systems.

And over time, it will all migrate to fiber of the premises, but the time, here, could be a long time.

Understood.

Would you say the level of interest you are seeing from this one key telco customer in domestic in these past quarters is meeting your expectations or surpassing it by a little bit or by a lot?

It is very -- it is not a case of expectations.

You know, we have the best telco customers and we just follow along with what they decide to order.

Fair enough.

Hey, also then, on digital simulcast, particularly with what we have been hearing about what is going on at Charter and Comcast, I was hoping you could walk through a little how this works from your angle; how big you think it can be and how long it might last.

And then, finally then, if you've gotten any significant interest in your [kwan] digital head ends for simulcast from any other operators?

Well, to answer the last part of the question first, I think all operators are looking at what it takes to roll out, basically, digital television for all their channels.

They all have different views on whether they are going to retain the analog channels or for how long they are going to retain them.

But I think it is fair to say across the industry, now, everyone is looking at that.

And the reasons are the ones that I mentioned, that they need the high quality pictures and they need to think about how to free up bandwidth.

And the way to do it is to go digital because of the tremendous gains in efficiency that you get.

So I think you are going to find all the major operators are either studying and doing trials over the next year or two, or actually implementing.

The total market is reasonably large in the sense that you take all the major head ends and you have to put a system in that can cost anything from 1 to $10 million, depending on the size and the scale of the region you are servicing.

So we think it is going to be one of the drivers for our CSD business for the next few years.

Okay.

Great.

And then, finally, just to tie one thing up, it's -- obviously, you've got kind of a step function happening here in the CS business.

But can you shed some -- a little more light in either qualitatively, I guess is probably best, on BAN trends into 2005?

We are quite optimistic about our BAN business.

The HFC, I think, is a business that is not going to show rapid growth.

It is going to be steadily increasing, worldwide, and we saw the greater part of our sales in international.

I do think the drivers for the cable industry are the competitive threat from the telcos, because they are building networks that are really quite good.

And for the first time, I think the cable industry will have real competition on the network level.

I think that will encourage them to keep upgrading in a sense of splitting the nodes and providing just more transport capability to the customer.

And for our BAN division, which has been 100 percent cable for the last 13, 14 years, it is a delight to have a new market opportunity which could be of significant size in the fiber premises.

Okay.

Great.

Thanks very much.

Sir, our next question is from the line of Erik Zamkoff with IRG Research.

Hi.

Good afternoon.

Congratulations.

Again, great quarter, terrific guidance.

I was hoping you could talk a little bit about the gateway market, where you are seeing traction?

Do you feel that that business has sort of bottomed after a couple of quarterly declines?

And then, when do you see that business potentially picking up, and what drives that in 2005?

Well, actually, no, we had a tremendous year in the gateway business, I think, in 2003, beginning of 2004.

And everybody knows it slowed down from our point of view substantially in the later part of 2004.

Right.

And the reason for that is that the customers -- the market was 100 percent domestic, really, or nearly 100 percent.

The operators put in enough capability to get started, and you have to size this thing with the amount of equipment you need, in terms of gateways, by the peak demand, the number of subscribers who will come on at the same moment, calling for a video-on-demand service.

And they put in a fair amount of capability.

Then, of course, they had to get to work to understand what is the content you should put on the service besides movies.

I mean, they are putting on a lot of different content and learning to market the services.

I think the most public announcements have come, I think, from people like Roberts at Comcast and in their flagship system of Philadelphia where they have put a great many services now onto the servers of the video-on-demand system.

The take-up rate has been steadily increasing, and I understand from everything that Mr. Roberts has said that they are pretty happy and they see their future in on-demand services.

And that being the case, what we believe is going to happen is that later this year, in many systems, they are going to start to approach the limit of the capacity available, and at that point, they will simply order more of our gateways to increase the peak load capacity.

At the same time, I think we mentioned we had orders towards the end of last year in the gateway business.

We are international, and we expect significant shipments during 2005 in the international market for the first time.

Excellent.

Thank you.

Sir, your next question is from the line of Dan Ernst with Hudson Square Research.

Good afternoon, guys.

This is Ryan Corey calling in for Dan.

I have a question just regarding on the satellite business.

I was just wondering if you can just talk about how Harmonic is positioned in terms of just timing and milestones to look forward.

I know that EchoStar is talking about rolling out MPEG-4 later this fall, and DirectTV has done an MPEG-4 HD trial early this year.

I want to talk about opportunities regarding that.

And then secondly, I know you guys have some revenues to recognize for, I believe it's SKY Perfect in Japan over the next quarter or two and I was wondering how the rest of that system buildout is progressing.

Thanks.

Ryan, I'll take the second part of that.

We recognized most of the revenue in SKY Perfect in the fourth quarter;

I think it was between 1.5 and $2 million.

There is a small piece to go, representing about 5 percent of the total.

So as far as the revenue is concerned, it's essentially over in the fourth quarter.

Concerning the MPEG-4, it's quite clear that all the major satellite operators are going to look at the advanced encoding technologies because, in time, they are going to need it.

Adding bandwidth and satellite means more satellites.

That is pretty expensive.

Switching to MPEG-4, of course, means new set-top boxes; not so easy.

So they have these constraints to deal with.

From what we've seen, they are all active in this area, and at some point I'm quite sure there are going to be deployments.

But as we found around this whole advanced Kodak, there was great excitement every time somebody switches a box on for an experiment.

But I will caution you that's a very long way, indeed, from the day when they will commit for commercial deployment and buy in significant quantity.

So I'm sure it is going to happen, but very reluctant to even hazard a guess as to when volume shipments for these markets would begin.

Okay.

Thank you.

Sir, your next question is from the line of Steve Levy with Lehman Brothers.

Hi, guys.

It's Eric for Steve.

I just had a couple of real quick questions.

Number one, what's the opportunity, or the potential opportunity, for you guys to supply other MSOs besides, I guess, Comcast and Charter, for the digital simulcasting?

Is it possible for you to expand in the Time Warner systems?

I guess that's number one.

And then, I just wanted to check about how capital spending seems to be trending with some of your major customers and what you guys think the impact may be going in through '05?

Well, in terms of digital video head ins and rollouts via channels and high definition, I would say we are in commercial discussions with virtually all the MSOs in one stage or another and different MSOs will decide to move at different times.

And we believe that our position in this market, this industry, is very strong, and we would expect to get a good amount of the business.

How much depends on who wins the deals and so forth, but I think our progress to date has been quite good and we do think it's going to be a strong market for us the next few years.

I'm sorry, was there another part of your question?

Yes, just more in reference to capital spending environment, overall capital spending environment for all your customers and what your expectations are for 2005.

Well, satellite seems to be continuing as it normally does, very steady.

Telco, anybody's guess.

In cable, I think the CapEx, in general, for cable companies is coming down, but the amount they spend on the equipment we make is extremely small part of their overall CapEx.

And the equipment we provide leads them to new generation -- new generation -- revenue generating services.

And so we're not significantly affected by the fact that CapEx may be coming down; they can still be very active, indeed, in procuring the sort of equipment that we manufacture.

Great.

Thank you.

And ladies and gentlemen, as a reminder, star 1 at this time for any questions.

Sir, our next is from the line of Eric Kanor with Needham & Company.

Great quarter, guys.

A few quick questions.

First, could you review the 10 percent customers please?

Yes.

Comcast was, in the fourth quarter, Comcast was 23 percent, Cable Vision 16 percent, Charter 11 percent.

And for the full year, Comcast was 17 percent.

Okay, great.

Thank you.

Next thing is, do you have any further reserved inventory which is potentially useful, that we should potentially consider for the out quarters?

I think we'll see some more, but I think we've probably flushed most of it out over the last several quarters.

There's some more potentially to go, but I don't think you're going to see the kinds of numbers, the million dollar -- typically, the million dollars or so we have seen on a quarterly basis this year.

I think it's going to start to tail off.

Okay.

And the last question is about the pricing environment, specifically for encoders.

What are you seeing there?

Are you seeing fairly stable pricing or are you seeing some price competition there?

Well, it is an active market with strong competition.

There was always pressure on the prices.

I think we have done correctly by selling encoders that have benefits over those that are otherwise available.

But in all our planning, we assume the pricing pressure is going to be severe and prices will trend downwards as they continue to do so.

For your planning purposes, I mean, what kind of year-over-year declines are you anticipating in the encoder pricing?

I think we're -- we plan the sort of trend that we've seen for the last few years, but I would rather not go into that.

Fair enough.

Thank you.

Sir, we have a question from the line of Paul McWilliams with [inaudible] Technology Research.

Hi, guys.

Thank you for a great quarter and congratulations.

In listening to Comcast and C-COR recently, the comments they make really lead me to believe that open standards are going to come pretty rapidly this year.

Can you comment on that?

Well, we hope they are right, because the basis on which Harmonic was formed way back and they are the company we acquired who has always been to be a supplier of open standards; we believe in them absolutely, it's the right way for the industry to go so that, in fact, virtually all of our equipment does meet open standards already.

And I think you are going to see the desire by the MSOs, which has always been there, to have open standards.

You are simply going to see that increase.

But I think they -- the difference, perhaps, now, compared with, say, 10-15 years ago, is that you have had a flood of data and telco people into the cable environment and these people live and breathe open standards because they have seen the benefit it has brought, shall we say, to the IT world.

So we're very pleased with this progression, and we do everything we can to promote open standards at every opportunity.

Wonderful.

Two more -- oh -- go ahead.

Was there another comment?

No, no.

Okay.

Two more questions, a little bit of housekeeping, I guess.

When do you suspect you will be ready to ship Advanced Kodak's MPEG-4 VC-1 in high definition?

That's a good question.

We think the market is going to be really ready for these things towards the end of the year, and that's about when we expect to be -- we expect to be up with what the market will require when it gets there.

So it's as much a matter of prioritizing your engineering efforts as much as anything else to get ready?

Absolutely.

You can appreciate our engineering is quite busy.

They are still working hard on MPEG-2, it's dealing with MPEG-4, it's dealing with VC-1.

It's dealing with three times what it had to deal with before, so of course, we're busy.

But there is nothing in this thing that's fundamentally a show stopper.

It's a question of us allocating our resources, and we really don't want to get ahead of the market as we've got a lot of things to do.

But the market won't develop until quite late in the year.

Excellent.

The last one here on the BAN division.

Can you quantify, put a number on, how much of your BAN sales in 2004 was to maintenance, maintenance repair, MRO-type sales?

Well, that's -- I don't think I can.

Maybe Robin.

I don't think we have that as a measure because we simply get orders and we cannot tell whether it's a new build, replacing something, or maintenance.

We simply do not know.

Okay.

Fair enough.

Thank you very much and again, congratulations.

Thank you.

Sir, we have no further questions at this time.

Okay.

Thank you all.

Thank you all very much for joining us today and we look forward to speaking with you at the end of the next quarter.

Thank you very much, indeed.

Good day.

Ladies and gentlemen, we thank you for your participation in today's conference.

This concludes your presentation and you may now disconnect.