Arris Swirls With MSO 'Budget Flush'
On Wednesday, Arris said it expected fourth-quarter revenues in the range of $295 million to $300 million, above an early forecast of $265 million to $285 million, bettering Wall Street's current expectation of $278 million. Arris also announced higher than expected earnings per share of 22 cents to 26 cents.
"This could end up being the best quarter we've ever had," Arris chairman and CEO Bob Stanzione told a Needham & Co. investors conference yesterday.
He said the rush of purchases were for a variety of Arris products, but Morgan Keegan & Company Inc. analyst Simon Leopold said the biggest contributor likely involved a run on Arris's Docsis 3.0 gear.
Looking ahead, the Arris chief said he expects 2010 to run a similar pattern to 2009: a slow start, with momentum building throughout the year. Arris has not announced first-quarter guidance.
Among product categories, Stanzione said Docsis 3.0 will be a key growth driver in 2010. Comcast Corp. (Nasdaq: CMCSA, CMCSK) ended 2009 with about 80 percent of its network Docsis 3.0-ready, which contributed greatly to Arris's bottom line (Comcast represented 33 percent of Arris's revenues through the first three quarters of 2009). (See Comcast Speeds Up '09 Wideband Goal .)
Comcast is expected to wrap up its Docsis 3.0 network build out this year, so "I wouldn't be surprised if business with Comcast with CMTS cools off this year," Stanzione said, noting it's likely that Comcast still will need to "augment" its wideband networks about two years after deployment to keep pace with growing capacity requirements.
At the same time, he's confident Arris can address any revenue "lumpiness" in the Comcast account with wideband deployment opportunities that are sprouting up "all over the world," pointing specifically to areas such as Latin America, Germany, Eastern Europe, and Asia.
A run on Docsis 3.0 CPEs?
Stanzione's also hopeful that prices for Docsis 3.0 modems will continue to drop to the point that MSOs will buy wideband consumer premises equipment (CPEs) almost exclusively, and start to leave Docsis 2.0 equipment behind.
Chipmakers such as Broadcom Corp. (Nasdaq: BRCM) have indicated that new efficiency gains make a a sub-$50 Docsis 3.0 modem feasible... someday. A similar pattern occurred with Docsis 2.0 -- those devices eventually became cheaper than Docsis 1.1 modems as chipmakers combined more and more functions on the silicon gracing the new line of Docsis 2.0 equipment. (See Broadcom: Sub-$50 Docsis 3.0 Modem in Sight .)
Jefferies & Co. Inc. analyst George Notter said in a research note that Docsis 3.0 standalone modems may have already hit that $50 mark (he estimates that Docsis 2.0 voice-enabled modems cost about $70). But he's skeptical that the cable market's about to be flooded with wideband modems anytime soon. "At this point, we're inclined to believe Docsis 3.0 CPE adoption will remain slow until prices for the highest tiers of data service decline," Notter wrote.
Still, Stanzione warned investors that cable's Docsis 3.0 buildout won't mimic the "boom" that occurred 10 to 12 years ago, when operators underwent massive upgrades that turned their unreliable one-way plants into much sturdier two-way broadband networks.
"That was an unusual period," he said. "I don't think [the Docsis 3.0 upgrade cycle] is that type of a boom," but it will provide a "steady growth period."
Arris also hopes to create another growth opportunity with its entry into the set-top market, coming by way of its $20 million purchase of Digeo Inc. (See Arris Digs Digeo .)
With that buy, Arris is anticipating that cable operators will migrate more video to IP, creating a need for a new breed of hybrid "multimedia gateways" that can handle digital video coming in via IP as well as cable's legacy MPEG-based digital video transport platform. (See Digeo Gives Arris Multimedia Gateway Potential .)
Arris has shown off some ideas for features and functions it will pack into those gateways, but its first official prototype won't be out until later this year, Stanzione said.
But any growth from those efforts will be longer-term. Arris doesn’t expect to be involved in trials until early 2011, with rollouts starting in late 2011 or early 2012. "It will take time because there's an enormous installed base," the Arris CEO said, referring to cable's millions of QAM-based boxes.
— Jeff Baumgartner, Site Editor, Cable Digital News