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Arris Maintains Strong Pace in Q3

Alan Breznick
10/27/2016

With the merger moves of its big cable and telecom customers now completed and its own integration of Pace proceeding well, Arris is back on a roll heading into the final months of the year.

Arris Group Inc. (Nasdaq: ARRS) recorded its second straight quarter of robust revenue and earnings growth on a year-over-year basis in Q3 as it continued to benefit from the latest technology upgrade cycle in the communications industry. The company reported $1.72 billion in GAAP revenues for the quarter, up more than 40% from $1.22 billion a year ago while down slightly from a record $1.73 billion in the second quarter. Likewise, it reported GAAP net income of 25 cents per share in the summer quarter, up from 18 cents per share in the year-ago period while down from 44 cents per share in the spring quarter.

As in the spring, broadband and CPE sales led the way for Arris in the third quarter. The company racked up $1.23 billion in equipment sales to its cable, telco and satellite customers, up from $811.7 million a year ago (before the Pace deal closed) and $1.17 billion in the second quarter and beating Wall Street's estimates.

In particular, sales of set-top box and other video devices rose to $810 million as the company announced a WorldBox 2.0 deal with Charter Communications Inc. in the US, scored next-gen set-top contracts from Telefónica in Spain and Intigral in the Middle East, and introduced new 4K/UHD set-tops with Portugal Telecom SGPS SA (NYSE: PT) in Portugal and Telus Corp. (NYSE: TU; Toronto: T) in Canada. "The video market opportunity remains robust," said Larry Robinson, president of Arris's CPE division. (See Charter Deals Arris In on WorldBox 2.0.)

Broadband CPE revenues edged up to $415 million, slightly higher than a year ago, as stronger DSL equipment sales offset weaker sales of DOCSIS modems and gateways. Perhaps most notably, Arris started shipping its first DOCSIS 3.1 modems to cable operators for trials and early deployments and expanded its D3.1 gateway portfolio in the quarter. "We expect the portfolio to migrate in this direction," Robinson said.


Want to know more about pay-TV subscriber trends? Check out our dedicated video services content channel here on Light Reading.


The network and cloud side of Arris's business did not fare quite as well as the larger CPE division, which has ballooned over the last year because of the acquisition of Pace, a major set-top player. Network and cloud sales fell to $504.1 million in the third quarter, down 11% from the second quarter while still up 23% from a year ago.

Arris officials said the expected slowdown occurred because of the company's ongoing transition to next-gen line cards for the E6000 chassis for its cable modem termination system (CMTS) and Converged Cable Access Platform (CCAP) platforms. These new E6000 line cards, which support the new DOCSIS 3.1 broadband spec, are now supposed to start shipping later this quarter, a bit later than originally expected.

But Arris executives said prospects for the division should improve next year as the new E6000 line cards become available and they start pumping out 10G EPON and other new line cards for their network gear next year. They also see strong promise for their cable access products, including the new Remote Phy and CCAP Core products they're now developing, as the cable industry enters a new network upgrade cycle. (See Why Cable Is Upgrading Networks Now.)

"We expect the velocity of the business to grow in 2017," said new Arris CEO Bruce MClelland, who formerly headed the network and cloud division before taking over his new post last month. "2017 looks pretty bright for HFC access."

Arris officials said they expect Q4 GAAP sales to come in between $1.665 billion and $1.725 billion, with expected GAAP earnings of 23 cents to 27 cents per share. Such results would be lower than the company's Q3 results and a bit below Wall Street's estimates. But they still expect to hit their financial guidance targets for the full year of $6.735 billion to $6.785 billion in GAAP revenues and a GAAP loss of 10 cents to 14 cents per share.

In trading on the Nasdaq Exchange this morning, the price of Arris's shares fell to $27.30, down 7.5% from the close of Wednesday's trading day.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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