Arris Aims to Rebound
Investors didn’t share that optimism Friday, as Arris shares dove 27.56 percent ($2.18) to $5.73 each early on.
Prior to the fourth quarter of 2007, Arris had virtually all of the market share for EMTAs at Comcast as the MSO continued to scale up its digital voice product. That situation has kept Arris perched atop the EMTA heap. According to Heavy Reading, Arris had 53.8 percent of the EMTA market through the third quarter, followed by Motorola Inc. (NYSE: MOT), which had 19.7 percent. (See Cable Modem Shipments Growing Strong.)
Thomson S.A. (NYSE: TMS; Euronext Paris: 18453), which had just 6.3 percent of the market at that time, caused a stir last summer when it announced that Comcast had begun to purchase its DHG535 EMTA model. (See Thomson Wins eMTA Deal.) Concern about that deal came up during Arris’ second-quarter earnings call, but it was deflected in part by the announcement that Comcast had selected the Arris D5 Edge QAM. (See Comcast Taps Arris for Edge QAM Initiative .)
Although Comcast has introduced a second EMTA vendor and reduced its inventory requirements for the first quarter of 2008, “we expect EMTA orders to bounce back significantly in [the second quarter] and beyond, although not to the peak levels that we saw when we were [Comcast’s] sole EMTA source,” Arris chairman and CEO Bob Stanzione said during an earnings call with reporters and analysts Thursday afternoon.
Arris shipped 7.6 million consumer-side devices in 2007, up 46 percent from the 5.2 million units shipped in 2006. Despite the reported falloff in the fourth quarter, Arris actually shipped more CPEs in that period -- 1.79 million units -- than it did in the year-ago quarter (1.4 million).
Arris also remained optimistic about its cable modem termination system (CMTS) strategy, as it shipped almost 1,100 chassis in 2007. Its flagship CMTS, the C4, achieved record revenue in the fourth quarter, Stanzione said, citing some domestic momentum with MSOs such as Time Warner Cable Inc. (NYSE: TWC), Bright House Networks , and Cablevision Systems Corp. (NYSE: CVC).
As for Comcast, Stanzione said the operator appears to be reserving much of its CMTS budget for “an aggressive Docsis 3.0 rollout in the second half of the year.” Comcast restated this week that it plans to have a Docsis 3.0 architecture installed in 20 percent of its footprint by the end of this year. (See Comcast Spreads the Love .)
Although Arris expects improvements, the company did not provide any specific guidance for the second half of 2008.
And there are still questions about how quickly the D5, a universal edge QAM already selected by Comcast, will have a positive effect on Arris’ bottom line. Initial sales of the device are beginning with negative gross margin.
“The D5 sales are off to a bit of a slow start. I think the SDV (switched digital video) deployments are off to a bit of a slow start,” said Stanzione, who would say only that its contribution in the fourth quarter was a “very small percentage” of sales in the fourth quarter. But he expects shipments of the D5 to reach $10 million to $15 million by the fourth quarter of 2008.
— Jeff Baumgartner, Site Editor, Cable Digital News
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