Harmonic (HLIT) reported earnings after the close on July 25. The consensus was for $72.65 in sales and 10 cents per share, and the company did $71.3 million, up 34% from last year, and 11 cents. Bookings were strong across the board, and they are now guiding for $150 million to $160 million in sales in the second half of the year, compared with consensus expectations for $146 million. They also predicted 44% to 45% pro forma gross margins in the second half, again above expectations.

Where is the strength coming from? Everywhere, as satellite, cable and telephone companies around the world all plunge into delivering video to the consumer's living room, and that should be followed by high-definition video. In Japan, consumers get 100 megabits-per-second (mbps) fiber-optic Internet service for less than $30 per month. Comcast (CMCSA) will be rolling out Data Over Cable Service Interface Specifications version 3 (DOCSIS-3) over the next two years. DOCSIS-3 cable modems can operate at 150 mbps, compared to the 12 mbps service that I now get. Verizon (VZ), with fiber to the living room, and AT&T (T), with fiber to the curb and then as much copper as it takes to the living room, have to respond to Comcast's new faster Internet offering. We are on the edge of a dramatic increase in Internet speeds, with a much broader area for connections, thanks to WiMAX.

We're also on the edge of a serious price war. Verizon's fiber optic business Internet price schedule was leaked -- only $40 a month for 10 megabits downloading and two megabits uploading, up to $350 a month for 50 megabits downloading and 10 megabits uploading. That will easily replace a couple of T-1 lines, which cost at least $500 a month each. Competition is heating up, and HLIT will be at the front of the markets, providing the top video technology to these companies.