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Arris Gains From Docsis 3.0 CPE Surge

Jeff Baumgartner
4/26/2012

Arris Group Inc. (Nasdaq: ARRS) had a better-than-expected start to 2012 as several MSO customers turned their attention from Docsis 3.0 network rollouts to customer premises equipment (CPE) upgrades. (See Comcast 'Completes' Docsis 3.0 Rollout.)

Arris said 60 percent of the 1.6 million CPE units it shipped in the first quarter were equipped for Docsis 3.0, a platform that supports IPv6 and uses channel bonding to produce speeds of more than 100 Mbit/s.

Arris attributed the D3 surge in part to demand for a new breed of Wi-Fi-capable gateways, which represented one-third of all CPE shipments in the quarter. (See Cable Giants Get Aggressive on IPv6.)

Those first-quarter statistics prompted President and CEO Bob Stanzione to note during Wednesday's earnings call that the vendor had "seen the corner turn" on MSO investments in Docsis 3.0 CPE. To emphasize that trend, Stanzione presented a letter from Comcast Corp. (Nasdaq: CMCSA, CMCSK), Arris's largest customer, that encourages cable modem subscribers to upgrade their modems so they can benefit from faster broadband speeds.

CMTS demand was also strong as Arris shipped a record 109,744 downstream ports in the quarter, better than the 95,000 expected by Jefferies & Company Inc. analyst James Kisner. Arris added that it has also begun to ship a new CMTS upstream card that doubles the density to 24 ports and fits into the company's flagship CMTS, the C4. (See Arris CMTS Packs On Upstream Muscle .)

Arris also said development of its first Converged Cable Access Platform (CCAP) product, the E-6000, which combines CMTS and edge QAM functions, is on track, expecting it to be ready for initial commercial trials later this year. Comcast, the likely first customer for it, has issued a CCAP request for proposal (RFP) and intends to start some small-scale deployments in the second half of 2012. (See Comcast Issues CCAP RFP .)

New Moxi middleware program
Arris did not reveal shipment details for the Moxi video gateways spawned from its US$20 million acquisition of Paul Allen's Digeo Inc., but acknowledged they were lower than expected despite some recent contract wins with Buckeye CableSystem and WideOpenWest Holdings LLC (WOW) .

Stanzione said Arris will try to generate growth for the Moxi business with a new program, in collaboration with "several large lead customers," that involves the integration of middleware from "major third-party providers" into the gateways. Arris didn't elaborate, but it suggests the integration of tru2way middleware stacks, which are used by several large U.S. MSOs, including Comcast, Time Warner Cable Inc. (NYSE: TWC), Bright House Networks , Cablevision Systems Corp. (NYSE: CVC), Cox Communications Inc. , and by Canada's Videotron Ltd. Arris, though, doesn't expect to see deployments from that effort until 2013.

Financial snapshot
Arris's first-quarter results and second-quarter forecast beat analyst expectations. The vendor posted a profit of 19 cents per share on revenues of $304.2 million, up 6.6 percent versus the year-ago quarter. Wall Street was expecting a profit of 16 cents on revenues of $296.7 million.

Arris also projected second-quarter revenues of $330 million to $350 million and earnings in the range of 20 cents to 24 cents, better than analyst expectations of $313.5 million and 20 cents.

— Jeff Baumgartner, Site Editor, Light Reading Cable

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msilbey
msilbey
12/5/2012 | 5:35:01 PM
re: Arris Gains From Docsis 3.0 CPE Surge


Now that I think about it, I'm a little surprised Arris didn't try to incorporate outside middleware into the Moxi gateway from the get-go, given the likelihood that the big guys will only sign on if they have some control over the software platform. On the other hand, I suppose that would have delayed the product launch. As it is, the Moxi gateway has gotten some nice buzz, and that may be what it needed to take the next step with cable customers. 

Jeff Baumgartner
Jeff Baumgartner
12/5/2012 | 5:35:00 PM
re: Arris Gains From Docsis 3.0 CPE Surge


Arris's second largest MSO customer, Time Warner Cable, is also making some significant progress with Docsis 3.0. After a slow start, TWC now has D3 in front of about 85% of its homes, MSO president and COO Rob Marcus said Thurs. on TWC earnings call.  Comcast, Arris's largest customer, has D3 deployed in the vast majority of its markets... so here comes the CPE upgrade cycle.


Although cable ops will be putting more D3 CPEs into the homes, that doesn't always mean they are getting a wideband service...And the D3 sub numbers aren't that huge yet.  TWC, for example, added 73,000 wideband subs in Q1.


JB

msilbey
msilbey
12/5/2012 | 5:35:00 PM
re: Arris Gains From Docsis 3.0 CPE Surge


Rutledge does seem a likely choice to push for something like Moxi. We can hope for news at the Cable Show next month, but I'm guessing it's too early to get much. 


It interesting how some of the Tier 2s are able to innovate quickly now because they're not hampered by as much legacy equipment as the big guys, and because they're willing turn over more control. The WOW deployment of Ultra TV with the Moxi gateway is a good example. 

Jeff Baumgartner
Jeff Baumgartner
12/5/2012 | 5:35:00 PM
re: Arris Gains From Docsis 3.0 CPE Surge


I've asked Arris to offer more color on what this program is about, but I'm also guessing they started off selling gateways with their full stack because it could get them into the market more rapidly with the tier 2 MSOs (though some might argue that Shaw should be thought of as a tier 1, but tru2way wasn't a requirement to get in there).  Now that they've got that ball rolling, I agree with you that they now think it's time to focus on integrations for the larger MSOs.  But I don't know for sure yet if tru2way is part of this new program...but it would seem to make some sense.


The Jefferies analyst speculates that Charter may be in line for Moxi, and I think that's plausible since they were part of the tru2way MOU with Sony (though further along on deployments), and Charter has been talking about a new video gateway that will complement what they have going with  TiVo.   Also, word is that Tom Rutledge , Charter's new CEO, has put video down as a big priority during his early days there. JB


 


 

PeterPercosan
PeterPercosan
12/5/2012 | 5:34:53 PM
re: Arris Gains From Docsis 3.0 CPE Surge


The most amazing part of this announcement is that 40% of the shipments were *not* DOCSIS 3.0. Seems crazy to me that anyone buys a 2.0 modem these days.


over and out.


-p

craigleddy
craigleddy
12/5/2012 | 5:34:53 PM
re: Arris Gains From Docsis 3.0 CPE Surge


Interesting speculation about tru2way. Recently a developer told me that the issue with tru2way is that it's getting long in the tooth and is sorely in need of an upgrade (though I'm guessing that supporters like Alticast have done upgrades on their own and MSOs have added their own special sauce).


I'm wondering if Arris and its MSO partners will seek to leverage tru2way or if something that's even more IP-centric might emerge.      

AESerm
AESerm
12/5/2012 | 5:34:52 PM
re: Arris Gains From Docsis 3.0 CPE Surge


A little bit impatient there Peter? So is the prior Q why some opeators haven't set aside the necessary channels and enabled 3.0 in the headened? 

Jeff Baumgartner
Jeff Baumgartner
12/5/2012 | 5:34:50 PM
re: Arris Gains From Docsis 3.0 CPE Surge


Got a note from Jeff Heynen at Infonetics noting that his calculations show that Arris shipped just shy of 100K Moxi gateways in the first uarter (master and client units).


For the quarter, Arris put out 1.38M EMTAs and 159,098 cable modems...so the total CPE shipment number does factor in Moxis.






He also believes CMTS upstreams were flat versus the previous quarter. Arris gave us that upstream number today (41,184 ports). JB






 

 




Jeff Baumgartner
Jeff Baumgartner
12/5/2012 | 5:34:50 PM
re: Arris Gains From Docsis 3.0 CPE Surge


Yeah, might as well get that gear seeded. But makes me wonder what the cost delta is now between 2.0 and 3.0 modems and emtas/gateways.  We all remember when MSOs started buying 2.0 modems exclusively when they became cheaper than 1.1 modems. Obviously we aren't near anythign like that with 2.0 vs. 3.0, but at what point (now?) does it make sense to just buy and deploy 3.0 CPEs exclusively ? JB


 

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