Arris Picks Up Pace in Q2
Last year's dark clouds are clearing away very nicely for Arris this year.
With the integration of its huge acquisition of Pace proceeding ahead of schedule, and the merger and consolidation moves by its major customers now completed, Arris Group Inc. (Nasdaq: ARRS) recorded its biggest revenue quarter ever in Q2, raking in a record $1.73 billion in sales. The revenue totals, which came in higher than the company's earlier financial guidance, represented a 37.3% jump in sales from $1.26 billion a year ago. Similarly, Arris posted robust GAAP net income of 44 cents per diluted share in the quarter, up four times from 11 cents a year ago, as it continued its strong momentum from the beginning of the year. (See Pace Packs Big Punch for Arris.)
Of particular note, sales jumped 40% to $1.17 billion for Arris's dominant CPE division, as the big cable and telecom vendor reported improvements across its video product portfolio. At the same time, Arris's smaller network and cloud unit also registered strong growth, with sales rising 33% to $564 million in this year's spring quarter. The largest percentage gains came from the addition of Pace to the portfolio in January, but growth continued even beyond that with CPE segment revenues rising 7% sequentially, and the network and cloud business reporting 7.5% growth quarter-over-quarter.
"I'll start by saying that our strategy is working and that these are the kind of results that we enjoy reporting," Arris Chairman and CEO Bob Stanzione declared on the company's earnings call late Wednesday, calling it the company's "best quarter" ever. "The macro environment for our business is looking good and holding steady."
Specifically, on the CPE side of the business, Arris enjoyed robust sales with its portfolio of video products. Video CPE revenues jumped 85% on a year-over-year basis, thanks to solid demand across the board from telcos, cable operators and satellite TV operators, more than offsetting an 8% decline in year-over-year sales of broadband CPE. On the earnings call, Arris executives cited such recent examples as the rollout of their ZD4500 4K set-top by NOS in Portugal and the deployment of their VIUOP2262v2 IPTV DVR set-top by Omantel in Oman.
Despite the current technology debate in the pay-TV industry and the policy debate in Washington over the future role of set-top boxes, Arris executives said their earnings results show that the STB business for vendors should live long and prosper. "I think the evidence right here is that set-top boxes are not going away," Stanzione said. "We are designing new next-generation set-tops for major cable operators around the world as we speak, and we believe that video set-tops will remain a significant component of our business for quite some time into the future."
On the network and cloud front, Arris reported that sales of its Converged Cable Access Platform (CCAP) and PON hardware products climbed on a year-on-year basis, although they dropped from their record levels in the first quarter. But shipments of its downstream software licenses slipped "significantly" during the spring as "capacity previously purchased was being deployed and utilized across our customer networks," said Bruce McClelland, president of Arris's Network and Cloud division.
McClelland noted that cable operators are working on building up their network capacity for the new DOCSIS 3.1 spec as they prepare for deployments. However, he continued, "actual subscriber additions remain fairly low as the new CPE devices begin to come to market."
McClelland also said Arris has made "great progress" in developing Remote PHY products that will move the physical access layer of the DOCSIS CMTS from the cable headend to the fiber node in the access network. That module can either be inserted into an existing Arris fiber node and connect via its E6000 chassis or link ultimately to a "virtual DOCSIS core" that is now under development. This new Remote PHY family of products will joust in the cable access market with Distributed CCAP products from such other major access network vendors as Casa Systems Inc. , Cisco Systems Inc. (Nasdaq: CSCO), Huawei Technologies Co. Ltd. and Nokia Corp. (NYSE: NOK).
Feeling more confident about the stability of the US cable, telco and satellite TV markets now that the various mergers and acquisitions have been concluded, Stanzione said Arris now plans to hit the high end of its full-year revenue guidance of $6.6 billion to $6.8 billion. "The outlook for the second half of the year is really bright," he said.
Arris's stock price rose more than $3 per share on news of the quarterly earnings results to a high of $27.79 Thursday morning.
— Alan Breznick, Cable/Video Practice Leader, Light Reading