Terayon Communication Systems (fka TERN)

[hercules16]

Another case of an analyst downgrading his rating before he heard what the company had to say happened last Friday with Terayon Communication Systems Inc. (OTC BB: TERN.PK). Jefferies & Co. sent the stock crashing 16%, after its analysts downgraded it to “Neutral” from “Buy” on Thursday evening, and said that they did not expect that the company would be sold that quickly because of its lukewarm results up to September 2006.

Terayon then held its first conference call for some time on Friday evening and it had a few surprises in store. Its fourth quarter sales guidance of $18.6 million was 20% higher than Jeffries’ estimate. As the fourth quarter has been and gone, Jeffries will now have to take this figure as final and update their forecasts accordingly.

For me, the big surprise here was that this gap was due in its entirety to preliminary sales of around $3 million in the sexy field of television broadcasts over telephony networks - better known by the acronym IPTV. Asked to name the telephone companies which would be providing IPTV broadcasts on Terayon’s platform, the company’s managers replied, “The only name we can give you is that of our customer, Motorola Inc. (NYSE: MOT), and we can’t tell you who its customers are.”

The word on the market is that the IPTV customer in question is AT&T Inc. (NYSE: T). Judging from the tone of Terayon’s managers at the conference call, I would not be surprised if the company decides to hold off on a possible sale, since 2007 could be the year of the big breakthrough in home digital video broadcasts. As I understand it, Terayon will have what to offer if that comes to pass.

http://www.globes.co.il/serveEN/globes/docView.asp?did=1000173208&fid=1176