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1:15 PM Death of the set-top box? Don't tell that to Arris, whose hybrid video gateway strategy is springing to life
November 10, 2011
1:15 PM -- When it comes to the set-top box market, being the new guy is starting to pay off for Arris Group Inc. (Nasdaq: ARRS), which entered the fray in 2009 by putting up $20 million for Paul Allen's Digeo Inc. (See Arris Digs Digeo .)
That original investment could soon help the company drive an additional $100 million quarterly in sales thanks to wins with six still unnamed Tier 2 operators, Jefferies & Company Inc. analyst George Notter estimated in a recent research note that's bullish on Arris's gateway play. Those customers are in addition to BendBroadband and Shaw Communications Inc. , which are already deploying Arris's Moxi gateway products. (See Arris IDs Its First Video Gateway Customer .)
Notter's estimate is four times the $25 million in Moxi revenues Arris expects to pull in during the fourth quarter. Arris, meanwhile, already believes its gateways, which are capable of feeding in over-the-top content from sources like Netflix Inc. (Nasdaq: NFLX) alongside a cable operator's traditional video services, will represent at least 10 percent of 2012 revenues, which Notter expects to come in at about $1.31 million, better than his prior estimate of $1.2 billion.
Arris's 2012 gateway estimates are much more conservative than where Notter thinks that piece of the vendor's business is headed based on its current customer pipeline, putting the revenue opportunity for Arris at "several hundred dollars" per home. He also thinks Virgin Media Inc. (Nasdaq: VMED)'s early success with TiVo Inc. (Nasdaq: TIVO)-powered boxes (about 6 percent of customers have taken the product in its first quarter of availability) is an indicator of the kind of success Arris may get from its deployment with Shaw.
And Arris, which just rebranded its whole-home DVR products under the Moxi label, will be able to get more money in the door faster once early installation bottlenecks for the devices are cleared up.
But the analyst also likes that the gateways will give Arris a recurring, high-margin revenue stream because they require much more software than the other CPE gear in its portfolio, which include Docsis modems, data gateways and voice modems. He expects Arris's "portal" service to keep money flowing in the door even after Arris sells the boxes.
And the timing of Arris's set-top fortunes is interesting in that it's coming to life as Cisco Systems Inc. (Nasdaq: CSCO) and Motorola Mobility LLC have seen their set-top businesses struggle in recent quarters. And there are still many who see the set-top dying off as their functions become virtual as software that's embedded in connected devices like TVs and tablets. (See The Disappearing Set-Top .)
The form and function of the set-top is certainly changing, but Arris's solid execution of its Digeo acquisition so far seems to show that the box market still has plenty of runway left as MSOs make the push for IP video.
— Jeff Baumgartner, Site Editor, Light Reading Cable
Senior Editor, Light Reading
Baumgartner also served as Site Editor for Light Reading Cable from 2007-2013. In between his two stints at Light Reading, he led tech coverage for Multichannel News and was a regular contributor to Broadcasting + Cable. Baumgartner was named to the 2018 class of the Cable TV Pioneers.
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