Harmonic Announces Second Quarter Results.

Year-to-Date Sales Up 29%; Continued Expansion of Worldwide Customer Base; Customers Leveraging Power and Breadth of New Solutions

SUNNYVALE, Calif. -- Harmonic Inc. (NASDAQ: HLIT), a leading provider of broadcast and on-demand video delivery solutions, today announced its preliminary results for the quarter ended June 29, 2007.

For the second quarter of 2007, the Company reported net sales of $71.3 million, up 34% from $53.3 million in the second quarter of 2006. For the first six months of 2007, net sales were $141.5 million, up 29% from $109.5 million in the same period of 2006. In the second quarter of 2007, the Company's sales included significant contributions from cable, telco and broadcast customers deploying a broad range of new products and solutions. The Company also had strong bookings during the quarter, especially from its domestic and international satellite customers.

Gross margins in the second quarter of 2007 were significantly higher than in the same period of 2006 due to increased sales of new products and higher manufacturing volumes. As expected, gross margins also increased sequentially from the first quarter of 2007 as a result of a greater proportion of revenue from higher margin video processing solutions and software and services.

GAAP net income for the second quarter of 2007 was $6.2 million, or $0.08 per diluted share, compared to a GAAP net loss of $2.9 million, or $0.04 per share for the same period of 2006. Excluding non-cash accounting charges for stock-based compensation expense and the amortization of intangibles, the non-GAAP net income for the second quarter of 2007 was $9.0 million, or $0.11 per diluted share compared to a non-GAAP net loss of $0.2 million, or $0.00 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 June 29, 2007, the Company had cash, cash equivalents and short-term investments of $82.2 million, compared to $82.9 million as of March 30, 2007. During the second quarter of 2007, the Company reduced its inventories by $4.2 million compared to the previous quarter.

"We are pleased with our sales and earnings growth in the first six months of 2007, as well as our improved gross margins and inventory management, and our strong bookings in the second quarter of 2007," said Patrick Harshman, President and Chief Executive Officer. "Our growing global customer base is steadily gaining a deeper understanding that the breadth and power of our new products and solutions provides them with exciting opportunities to extend their video service offerings cost effectively and reliably."

"Our long-standing relationships with cable customers continue to grow stronger. In addition to industry-leading encoding, video-on-demand edge, and optical access solutions, we are now providing cable operators with compelling new solutions for switched digital video, time-shifted television, video-on-demand content streaming and management, video-rich navigation, and higher-speed Internet data delivery."

"While we continue to capture market share among satellite operators with our powerful MPEG-4 AVC high-definition video encoding solutions, we are also seeing success with our strategy to extend our satellite solution footprint to include video-on-demand and innovative video processing. While it remains difficult to predict the timing of new telco customer deployments and subsequent service expansions, our new solutions continue to drive new business in the emerging IPTV market. As we move into the second half of 2007, we are very encouraged by the continued diversification of our business across a wider range of products and solutions."

Business Outlook

The Company anticipates net sales for the second half of 2007 to be in a range of $150 to $160 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 3:00 p.m. Pacific (6:00 p.m. Eastern). A listen-only broadcast of the conference call can be accessed on the Company's website at www.harmonicinc.com or by calling +1.706.634.9047 (conference ID number 6357154). The replay will be available after 6:00 p.m. (Pacific) at the same website address or by calling +1.706.645.9291 (conference ID number 6357154).

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 our long-standing relationships with cable customers continuing to grow stronger; our beliefs regarding the capturing of market share and the success of our strategies with satellite operators; our beliefs about continued diversification of our business across a wider range of products and solutions in the second half of 2007; our expectation that our combined net sales for the second half of 2007 will be in the range of $150 to $160 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 products will not generate sales that are commensurate with our expectations; 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 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, our Quarterly Report on Form 10-Q for the quarterly period ended March 30, 2007, 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 herein are trademarks or registered trademarks of their respective owners.

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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, 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 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. In
   addition, severance costs were incurred due to a reorganization of
   its senior management following the appointment of a new Chief
   Executive Officer. 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.

   -- Amortization of Intangibles

   The Company has incurred amortization of intangibles related to
   various acquisitions the Company has made. 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.
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