Harmonic Announces Third Quarter Results.

Strong Growth in Sales and Earnings; Increased Revenue from Satellite Customers Worldwide; New Products Driving New Video Delivery 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 and nine months ended September 28, 2007.

For the third quarter of 2007, the Company reported net sales of $82.3 million, up 31% from $62.9 million in the third quarter of 2006. For the first nine months of 2007, net sales were $223.8 million, up 30% from $172.3 million in the same period of 2006. Results for the third quarter of 2007 included significant revenue from a growing number of satellite customers deploying an increasingly broad range of new products and solutions. The Company also saw sequential revenue growth in both domestic and international markets, with international sales representing 46% of revenue in the third quarter.

Gross margins also increased sequentially from the second quarter of 2007 as a result of a larger proportion of revenue from higher margin video processing solutions and software and services, partially offset by a charge of approximately $1.8 million to write down excess inventory of older products which are being replaced by the Company's new products.

GAAP net income for the third quarter of 2007 was $9.4 million or $0.12 per diluted share, up from $4.0 million, or $0.05 per diluted share, for the same period of 2006. GAAP net income for the third quarter of 2007 included a net benefit from a reduction in excess facilities reserves of approximately $1.4 million, resulting primarily from an extension of a sub-lease. Excluding the lease benefit and non-cash accounting charges for stock-based compensation expense, the amortization of intangibles, and a one-time charge for acquired in-process technology from the recent acquisition of Rhozet Corporation, the non-GAAP net income for the third quarter of 2007 was $11.9 million, or $0.15 per diluted share, up from $7.5 million, or $0.10 per diluted 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 September 28, 2007, the Company had cash, cash equivalents and short-term investments of $99.0 million, up from $82.2 million as of June 29, 2007. During the third quarter of 2007, the Company reduced its inventories by $6.2 million compared to the previous quarter.

"We are very pleased with our strong sales and earnings growth, as well as our improved gross margins and operating efficiencies, for the third quarter and for the year-to-date," said Patrick Harshman, President and Chief Executive Officer. "We believe that we have increased our market share among domestic and international satellite operators, which has been driven by our powerful MPEG-4 AVC high-definition and standard-definition video encoders, as well as our new video processing, video-on-demand and network management solutions."

"Our cable customers continue to deploy our industry-leading encoding, video-on-demand edge and optical access products, and we see growing interest in our innovative new solutions for switched digital video, time-shifted television, video-on-demand content preparation and streaming, video-rich navigation, and higher-speed Internet data delivery. In the emerging IPTV market, our IP-based video solutions have been winning new business with telco companies worldwide and, increasingly, drive network expansions for existing global telco customers."

"We remain very encouraged by our strengthening position in key service provider markets. We expect to continue to extend the breadth and depth of our products, and we believe that our global customer base will continue to further leverage the power of our new solutions to expand their video service offerings in exciting new directions."

Business Outlook

The Company anticipates that the combined net sales for the fourth quarter of 2007 and the first quarter of 2008 will be in a range of $155 to $165 million and gross margins will be 41% to 43% on a GAAP basis. Non-GAAP gross margins for the same period, excluding stock-based compensation expense and the amortization of intangibles, are anticipated to be in a range of 45% to 47%.

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 at www.harmonicinc.com or by calling +1.706.634.9047 (conference ID number 19970165). 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 19970165).

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 utilize Harmonic's digital video, broadband optical access and software solutions to offer consumers a compelling and personalized viewing experience.

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 we will experience growing cable demand for our new solutions for switched digital video, time-shifted television, video-on-demand content preparation and streaming, video-rich navigation, and higher-speed Internet data delivery; our expectation that we will continue to extend the breadth and depth of our products; our belief that our global customer base will continue to leverage the power of our new solutions to expand their video service offerings; our expectation that our combined net sales for the fourth quarter of 2007 and the first quarter of 2008 will be in the range of $155 to $165 million, our gross margins will be 41% to 43% on a GAAP basis, and our non-GAAP gross margins for the same period, excluding stock-based compensation expense and the amortization of intangibles, will be in a range of 45% to 47%. 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; the mix of products sold and the effect it has on gross margins; 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 June 29, 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 charges and credits in operating expenses due to adjustments related to vacating and subleasing portions of its Sunnyvale campus and 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 charges and credits 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 and Charge for Acquired In-Process Technology

The Company has incurred amortization of intangibles and has taken a charge for acquired in-process technology related to acquisitions the Company has made. Management excludes these items when it evaluates its core operating performance. We believe that eliminating these expenses is useful to investors when comparing historical and prospective results and comparing such results to other public companies because these expenses will vary if and when the Company makes additional acquisitions.

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