Arris Tempers Q3 CMTS Sales Surge

Jeff Baumgartner
LR Cable News Analysis
Jeff Baumgartner, Senior Editor, Light Reading
10/29/2008



Arris Group Inc. (Nasdaq: ARRS) notched a strong third quarter but characterized the situation headling into 2009 as a bit hazy, as operators spend more time than usual poring over their capital budgets. (See Harmonic Casts a Cautious Eye on '09 .)

Expectations for next year are "a little murkier, quite honestly, because we haven't seen any announcements yet from the cable operators," Arris chairman and CEO Bob Stanzione said yesterday during the company's earnings call. "Even in private conversations with members of the industry, what I'm hearing is that they [cable operators] are taking longer to deliberate what their capex plans are for next year." Despite present economic turbulence, he said, "I think that we are at least cautiously optimistic that we can have a good year in 2009."

For the most part, cable capex wasn’t much of an issue for Arris in the third quarter. Arris, which sells cable modems, embedded multimedia terminal adapters (eMTAs), cable modem termination systems (CMTSs), and edge QAMs, posted record third-quarter revenues of $298 million, up 17 percent year-over-year, but just shy of the $299 million expected by analysts. However, earnings per share of 24 cents beat Wall Street expectations by three pennies. (See Arris Posts Q3.)

Arris's business with Comcast Corp. (Nasdaq: CMCSA, CMCSK) rebounded in the period, driven in part by the MSO's aggressive rollout of Docsis 3.0. (See Comcast Takes 'Wideband' Wider and Arris Aims to Rebound .) Arris said overall CMTS sales for the period outpaced the record level set in the previous period, with aggregate downstream ports (for existing Docsis 2.0 environments and a few new Docsis 3.0 systems) surging from 8,000 in the second quarter, to more than 29,000 in the third quarter.

Among Arris's largest customers, sales to Comcast were $101 million in the third quarter, versus $47 million in the second. Year-over-year, sales to Comcast dropped $117 million, primarily due to lower purchases of Docsis voice modems. Sales to Time Warner Cable Inc. (NYSE: TWC) dipped to $44 million in the third quarter, compared to $75 million in the previous period.

Meaningful Docsis 3.0 growth expected later
Although Comcast is in the process of wiring up its systems for wideband, the mix of Docsis 3.0 gear Arris shipped in the third quarter "was not meaningful," said Bruce McClelland, president of Arris's Broadband Communications Group. "I think it's going to be fairly modest for some time as the network upgrades proceed," he noted, adding that Arris believes there will be a "fairly significant transition to 3.0 in 2009."

From a geographic standpoint, McClelland reiterated that there is "pent up demand" for Docsis 3.0 in Asia. Wideband interest is also "accelerated" among European MSOs, but not to the extent that it is in the Japanese and Korean cable markets.

Looking ahead, Arris said it expects fourth-quarter revenues in the range of $280 million and $300 million, with GAAP net income per diluted share between 16 cents and 21 cents.

— Jeff Baumgartner, Site Editor, Cable Digital News

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