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Arris Rides Docsis Roller Coaster in Q3

Jeff Baumgartner
10/28/2010

Arris Group Inc. (Nasdaq: ARRS)'s third quarter was mixed as shipments of Docsis 3.0 modems, voice modems, and gateways continued to accelerate while sales of cable modem termination system (CMTS) gear hit another bump in the road.

On the upside, Docsis consumer premises equipment (CPE) shipments reached 1.8 million units, the most since 2007, led by shipments of 1.46 million embedded multimedia terminal adapters (E-MTAs, or voice modems). Shipments of Docsis 3.0 gear represented 33.5 percent of the CPE total, up from about 25 percent in the second quarter.

In comparison, CMTS shipments (24,000 downstreams and 13,000 upstreams) marked the lowest level for Arris since 2008 as MSO customers tapped into the incremental capacity they purchased in prior quarters.

Slowness in those shipments contributed to a flat financial quarter, as revenues reached $274.3 million, versus $275.8 million in the year-ago period, and just below Wall Street's expectation of $278 million. Adjusted net income was 19 cents per diluted share, down from 25 cents. (See Arris Posts Q3 .)

Arris said international sales were a bright spot, with those sales representing 35 percent of the total, up from 29 percent a year ago. However, that momentum was countered by "spending restraint by US MSOs," Arris CEO Bob Stanzione said on Wednesday's call. He's also confident that CMTS sales will bounce back next year as MSOs exhaust their installed capacity.

CMAP hint
On the product front, Arris hinted at a product that could fit in with Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s Converged Multiservice Access Platform (CMAP) product initiative. The vendor's "E6 Converged Edge Router" represents "a giant leap forward in CMTS technology," Stanzione boasted, but didn't specify a launch time frame. However, it's expected that CMAP products will start showing up by 2012. (See Comcast God Box Also a Green Box, Comcast Proposes Its God Box , and More MSOs Back Comcast's Big Box Project .)

Arris is also making progress on a hybrid QAM-IP multimedia gateway born out of its acquisition of Digeo Inc. Stanzione said Arris has shipped its first lab trial units to "several customers" and has received orders for field trials that are slated to start in the current quarter. (See Arris Crafting Its Own Video Sling and Digeo Gives Arris Multimedia Gateway Potential .)

But some analysts aren't convinced Arris will be successful in penetrating a set-top market that's still dominated by Motorola Inc. (NYSE: MOT) and Cisco Systems Inc. (Nasdaq: CSCO).

"While Arris has a number of the critical technology elements that are necessary to be successful here, it's not a foregone conclusion that they'll ultimately be successful in this market. Hence, we think the jury is still out here," Jefferies & Company Inc. analyst George Notter said a research note issued this morning.

Looking ahead, Arris sees a soft fourth quarter, with revenues of $250 million to $275 million. The Street was expecting $283 million.

— Jeff Baumgartner, Site Editor, Light Reading Cable

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