Arris Spreads Its Wideband Wings

Arris Group Inc. (Nasdaq: ARRS) sales to major US MSOs dipped in the first quarter, but the cable gear and software supplier made up for it with record international sales as operators in Latin America and Europe ramped up purchases of Docsis 3.0 gear.

Arris posted first-quarter sales of $267 million, hitting Wall Street expectations, along with earnings per share of 24 cents, which beat the Street by four cents. (See Arris Reports Q1.)

Table 1: Arris Q1 At a Glance
1Q09 1Q10 Change (%)
Revenues ($B) 0.254 0.267 5%
Net Income ($B) 0.013 0.019 47%
EPS ($) 0.10 0.15 50%
Share Price ($) 10.80 12.60 17%
Source: Arris and Light Reading
Note: Table uses GAAP numbers, where possible.

As expected, the revenue train slowed down domestically, particularly among Arris's two 10 percent-or-better customers, Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC), which stocked up on Arris gear in the fourth quarter of 2009. (See Arris Swirls With MSO 'Budget Flush' and Arris Expects Less From Comcast in 2010 .)

The Comcast account brought in $46.3 million, off from $65.2 million in the year-ago period, while TWC accounted for $41.1 million, versus $49.1 million.

That slowdown was offset by record international sales of $109 million, equating to about 40 percent of Arris revenues. Much of that was tied to Docsis-related sales, but Arris noted that demand for video servers and video-on-demand (VoD) software is gaining steam in China.

Arris cable modem termination system (CMTS) downstream shipments remained strong at 33,992, the second-best for the vendor. But Arris is finally seeing pickup for Docsis 3.0 customer premises equipment (CPE) as MSOs here and abroad start to sign up customers for faster wideband service tiers following a string of CMTS and network upgrades.

Arris said 14 percent of its Docsis CPE shipments in the first quarter were of the wideband variety. Given that Arris shipped 1.05 million Docsis voice modems and 121,402 data-only cable modems, that suggests that the vendor shipped at least 164,000 wideband-capable modems and embedded multimedia terminal adapters (EMTAs) in the quarter.

While that could suggest that consumers are starting to open their wallets and sign on for wideband tiers that cost $100 or more per month, Arris chief financial officer Dave Potts noted that pricing on those services vary by region. "If you look at what [cable operators] are marketing in Europe, it's a completely different game there and a much more aggressive package," he said.

The company said it's also starting to see momentum for its new line of Radio Frequency Over Glass (RFoG) products, claiming that it has started multiple RFoG and Ethernet PON field trials in North American and Europe. (See Arris Enters RFoG Fray .)

But that part of the business isn't going gangbusters yet. "We haven't really seen a major uptick in revenues yet [for RFoG and cable PON], but we are seeing a firming in that business, and we're seeing a lot more RFP [request for proposal] activity," Arris chairman and CEO Bob Stanzione said on Tuesday afternoon's earnings call.

Arris said it entered the second quarter with more than $195 million of backlog, up by more than $50 million from a year ago, "so I think you can see we're off to a good start this year," Stanzione said.

Looking ahead, Arris expects second-quarter revenues of $275 million to $295 million, with earnings of 22 cents to 26 cents per share.

— Jeff Baumgartner, Site Editor, Light Reading Cable

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