It wasn't one of Arris's best quarters, but the company still performed better than expected in Q1, helping to even out lumpy revenues that were predicted after a stellar end to 2016, and causing the company's stock price to jump around 10% in early morning trading.
Highlights for the first quarter include a 33% jump in international sales, strong sales in cable node and optics products as operators continue to split nodes and drive fiber deeper into their networks, and continued high demand for broadband customer premises equipment (CPE), which made up 40% of all CPE sales in the first three months of the year.
All told, revenues for the quarter hit $1.5 billion, down 8% from a year ago, but still beating analyst forecasts of $1.46 billion. Earnings per share came in at $0.40, again lower than the $0.47 EPS number from Q1 of 2016, but higher than analyst predictions of $0.38. The CPE business represented 71% of sales, while the Network and Cloud business brought in the other 29% of revenues.
In terms of the forecast for the rest of the year, Arris Group Inc. (Nasdaq: ARRS) believes it is still on track to hit between $6.6 billion and $6.8 billion in revenues, with earnings per share coming in between $2.40 and $2.60 for all of 2017. The company has also received antitrust approval for its acquisition of Ruckus Wireless, a deal Arris expects to complete in August once Ruckus is spun out from Brocade Communications Systems Inc. (Nasdaq: BRCD) in a transaction that has Broadcom Corp. (Nasdaq: BRCM) buying up the bulk of Brocade's business. (See Is Ruckus Right for Arris? and Arris Bags Ruckus Assets in $800M Deal.)
From a CPE perspective, a couple of items stand out in Arris's Q1 report. First, the company is benefiting from Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s syndication of the X1 platform, which is driving demand for Arris hardware from Comcast X1 partners that now include Cox Communications Inc. , Rogers Corp. and Shaw Communications Inc. . Second, the company says it is quickly ramping up production of DOCSIS 3.1 gateways and expects to sell 2 million D3.1 units by year's end. Third, Arris says it is seeing renewed interest in Android-based set-tops, a data point that supports a recent Ovum Ltd. research report which found that Android was the most popular set-top operating system named in an extensive survey of operators globally. (See Survey Says Future's Bright for Android TV.)
In the Network and Cloud business, Arris has acknowledged a delay in the release of its second-generation downstream line card for the E6000 Converged Cable Access Platform (CCAP) product. According to Arris, the wait for new line cards is part of what softened sales in Q1, and now the launch of the new downstream line card has slipped further from Q2 to Q3. However, the delay is a mere hiccup in timing, which can easily be corrected in the back half of 2017.
What's more interesting for the Network and Cloud business is how Arris intends to evolve its CCAP product line as the industry shifts further toward virtualization and software-based solutions. In the near term, the company plans to use the E6000 as a software management platform for distributed access architectures (DAA) including Remote PHY and ultimately Remote MAC/PHY deployments. As of 2018, says Arris CEO Bruce McClelland, "We'll be in general availability and commercial deployments of a Remote PHY implementation and be interoperable with other suppliers."
In the longer term, however, Arris is also looking at full virtualization of the E6000. A spokesperson told Light Reading: "We do have plans to take this field-hardened platform and the experience we have with the E6000 and build a virtualized version in the next few years. This would be a software-based solution that would reside on COTS [commercial off-the-shelf] servers and be able to manage remote devices from a headend or data center. We do see the subject of virtualized CCAP platforms with some operators, but don't see it being at any significant scale in the immediate future."
Arris expects DAA technology to ramp up in the 2018/2019 timeframe, with full virtualization not coming into play until 2019 and beyond.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading