Arris Starts to Make Hay on Digeo Deal
Granted, we're not talking about Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC) -- Arris's largest customers. Instead, the initial traction is coming from smaller Tier 2/3 operators that are pulling the trigger on advanced video gateway strategies well ahead of major U.S. MSOs.
Arris isn't naming names yet, but company President and CEO Bob Stanzione told analysts during the company's fourth-quarter earnings call that production on the boxes are underway. Field trials started late last year. "I would say that we're going to have tens of millions of dollars [in] shipments in the second half of the year ... which represents a new market for us," he said.
It's a start, but it's also just a drop in the bucket. Arris thinks the addressable market for its set-top and gateway products will be in the neighborhood of $2.2 billion by 2013. Arris is targeting that sector with a new breed of hybrid video gateways that support traditional RF video and IP-fed services and can share content with other TVs hanging off the home network. (See Arris Crafting Its Own Video Sling.)
Despite Arris's enthusiasm, some analysts still question whether the company's set-top play will present much of a challenge to incumbents such as Motorola Inc. (NYSE: MOT), Cisco Systems Inc. (Nasdaq: CSCO), Pace Micro Technology and Samsung Corp. . "In our view, it's not a foregone conclusion that they'll ultimately be successful in this market," noted Jefferies & Co. Inc. analyst George Notter.
No Q4 'budget flush'
Arris got a healthy bump in the year-ago quarter when MSOs swooped in to buy modems, cable modem termination systems (CMTSs) and other gear in late 2009. (See Arris Swirls With MSO 'Budget Flush'.)
Not so this time, as revenues dipped 11.3 percent to $262 million due to weaker year-over-year sales to Comcast ($83.5 million, versus $89.9 million) and TW Cable ($45.4 million, versus $82.3 million) as those operators pulled in Docsis 3.0-related purchases following more aggressive buying earlier in the year. But the vendor's revenues still beat Wall Street's expected $263.6 million. (See Arris Posts Q4 .)
Arris salvaged the quarter thanks in large part to an increase in international sales and a big rebound in CMTS downstream port shipments -- a record 46,000, up from just 25,000.
Although the CMTS market remains lumpy, Arris was upbeat about its prospects for 2011 as it tests and prepares to ship out what it's calling "second generation" Docsis 3.0. That essentially means new CMTS line cards with denser upstream and downstream ports to help handle growing IP network traffic. (See Arris Boosts CMTS Downstream Density .)
Arris believes the extra capacity will be needed as operators like Comcast continue to deliver IP video streams to devices like PCs and iPads, and as the number of modems capable of handling D3 speeds increases. Arris estimates that less than 5 percent of installed Docsis modems and voice modems are of the wideband variety. (See Press 'Play Now' on the iPad.)
As for the Converged Multiservice Access Platform (CMAP), a next-gen architecture that will combine CMTS and edge QAM functions and help cable put all services on IP, Arris isn't banking much on that yet. "Meaningful revenue" for CMAP products is still a couple of years out, predicted Bruce McClelland, president of Arris's Broadband Communications Systems unit. (See CMAP Heads to CableLabs and Comcast Proposes Its God Box .)
But not everyone is as excited about cable's denser future. Notter, for example, is already wondering if Arris can overcome the port-pricing erosion expected when denser CMTS cards come on line and MSOs eventually move ahead with CMAP deployments.
— Jeff Baumgartner, Site Editor, Light Reading Cable