Docsis 3.0 Dominates Arris Modem Shipments
Those D3 CPE shipments were a big jump from the first quarter, when 60 percent of the 1.6 million CPEs shipped had that distinct wideband flavor. Arris's second-quarter revenues and earnings beat Wall Street estimates, but gross margins of 33.9 percent, driven by the bigger mix of CPE shipments, did not. Arris shares were up 80 cents (6.07%) to $12.37 each in afternoon trading Thursday. (See Arris Marks $15M Q2 Profit.)
The latest surge in shipments offers another indication that many of Arris's cable MSO customers (Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC) are its two largest) have completed the initial phase of their Docsis 3.0 network deployments and are starting to prime the pump for new, faster tiers that match up with FiOS and leave DSL in the dust. Among recent moves, Comcast is launching a new Platinum tier in the northeast that maxes out at 305Mbit/s downstream and 65Mbit/s upstream. The rollouts are also setting the table for cable's IP video migration. (See Comcast Revs Up Pricey 305-Meg Tier.)
Bruce McClellend, president of Arris's broadband communications unit, estimated on Wednesday's earnings call that the vendor's about 25 percent to 30 percent of the way into the D3 CPE upgrade cycle.
Arris also saw a shift in cable modem termination system (CMTS) shipments as demand skewed toward the upstream and the vendor saw increased shipments of a new dedicated upstream card with 24 upstream ports that doubles the capacity of the older module. That's further proof that cable upstream channel bonding is ready to go and becoming more important to the operators.
Video gateway revision
The news was not as bright for Arris's Moxi video gateways. Sales "were lighter than we expected" because of a slow deployment ramp with one unnamed customer, said Chairman and CEO Bob Stanzione. He warned that "it's going to be a stretch" for the product to pull in hoped-for revenues in excess of $100 million this year.
Arris has initially focused Moxi, a product born out of its $20 million acquisition of Paul Allen's Digeo Inc., on Tier 2/3 operators, but hopes to target larger MSOs that want the devices customized with their own software or third parties. Arris doesn't expect that piece of its gateway strategy to take off until sometime next year.
Arris said it's on track for more lab and field trials in the second half of the year for the E6000, a super-dense Converged Cable Access Platform (CCAP) device that combines CMTS and edge QAM functions.
As Arris nears the end of its first stage of production on the E6000, the vendor tried to settle fears that its CCAP product would cannibalize or slowdown CMTS sales. "We do see a pretty long extended overlap cycle between the C4 [CMTS] and the E6000, and the C4 is pretty well-suited for today's capacity requirements," McClelland said. He said the E6000 will come into play as MSOs move beyond 300Mbit/s of capacity and begin to bond enough channels to hit 600Mbit/s and on up to 1Gbit/s. Some operators, including Comcast, have talked about redeploying CMTS gear in other markets as it begins to introduce CCAP.
But he didn't convince everyone. In a note issued Thursday, Raymond James Financial Inc. (NYSE: RJF) analyst Simon Leopold anticipated that "CMTS sales could slow late in 2012" ahead of a CCAP transition that's expected to start in earnest in 2013.
— Jeff Baumgartner, Site Editor, Light Reading Cable