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Merrill Lynch downgraded Scientific-Atlantic (SFA
) to near-term reduce/sell from neutral, and also long-term neutral from buy.
Analyst Tal Liani says Time Warner, a 50% customer for Scientific-Atlantic's set-top business, reported a 44% sequential drop in net addition of digital subscribers. He notes, with the exception to Cox Communications, he expects Scientific-Atlantic's other customers to report net addition declines of 25%. Liani sees margins declining sequentially as the next quarter is expected to have a higher mix of high-end boxes (lower margin level.)
Liani cut the $1.15 calendar 2002 EPS estimate to $1.08, and trimmed the $1.35 calendar 2003 estimate to $0.99. He sees no margin improvement, and limited revenue growth potential. Liani thinks Scientific-Atlantic will not report meaningful revenue or earnings per share growth over the next two or three years.
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