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Arris Sees Stormy Spring

Despite a bulging pipeline of new video and broadband products, Arris expects to report lower revenues for the second quarter as it strives to revive its slumping new Motorola Home division. Speaking to Wall Street analysts late Wednesday, Arris executives painted a gloomier than expected picture of spring equipment and software sales for their vastly bulked-up company. They said sales will be in the range of US$1.028 billion to $1.078 billion, centering on about $1.053 billion, approximately $52 million below the $1.105 billion that the combined companies would have reported for the first quarter. "Frankly, we expected some decline, but these results are weaker than our original estimate," said Bob Stanzione, chairman and CEO of Arris. "We will have some work to do before meeting our target run rates." As he did at a financial conference in New York last week while discussing first-quarter results, Stanzione blamed the expected lackluster sales in the spring on management distractions and ownership uncertainties at its freshly acquired Motorola Home unit, whose future has been up in the air for most of the last three years. "It is clear that the [Motorola Home] management team put a lot of time and effort into the auction process," he said. "And the uncertainty throughout the process took its toll on the employees." (See Arris Chief Wields OpEx Axe.) Similarly, Stanzione said the uncertainties surrounding Motorola Home's ultimate fate took its toll on customers as well. He noted that several major cable operators and telcos told him they were holding back on new product orders from Motorola Home until its disposition was decided, costing that company both momentum and market share. Yet, as he did at the Jefferies Global Technology, Media and Telecom Conference last week, Stanzione insisted that brighter days are ahead for the Arris-Motorola union in the second half of the year. He pointed to the "healthy product pipeline" of the combined company, as well as the slowly improving economic environment, growing capital spending by service providers and the "fairly vibrant market out there." Stanzione and Larry Robinson, a former Motorola Home executive who now heads Arris's customer premises division, cited the specific products that the combined company now has in the works. The list includes Arris's new E6000 edge router and Motorola's new APEX 3000 edge QAM, which are both designed for the cable industry's forthcoming deployment of Converged Cable Access Platform (CCAP) technology. They said the E6000 is now in the early stages of deployment, while the APEX 3000 is now ready for delivery. Also in the pipeline are home IP video gateways, wireless data gateways, video compression gear, multi-screen user interface software, digital rights management (DRM) software and other video and broadband products for both cable operators and telcos. Robinson said several of these products are in either the product qualification or trial phase. “We’re working with many major service providers in both the cable and telco space on these projects,” Robinson said. Without disclosing specifics, he said he expects to see some product launches in the third quarter. Arris officials are particularly excited about the market prospects for home video gateway products. They highlighted their own and Infonetics Research Inc. data indicating that the global home video equipment market will grow 6 percent a year from $17.5 billion in 2013 to $22.8 billion in 2017. The research also indicates that video gateways will climb from a 28 percent share of the video equipment market this year to a 64 percent share in 2017. "These products are in our sweet spot and are poised for growth," Stanzione said. "This business is not going away." As a result, Arris executives contend that they will still hit their revenue and profit margin targets within a year after closing the Motorola Home purchase last month. They're seeking to reach an annual revenue range of $4.8 billion to $5.1 billion for the combined company. "Clearly we have to start going up instead of down," Stanzione said. "We think we'll start doing that in the third quarter." — Alan Breznick, Cable/Video Practice Leader, Light Reading
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