Almost everywhere they look these days, Arris executives see the promise of steady growth.
In a remarkably upbeat Investor Day conference for financial analysts in New York on Wednesday, Arris Group Inc. (Nasdaq: ARRS) officials extolled their opportunities for boosting revenues, profits and market share across a wide swath of cable, broadband, video, wireless and enterprise sectors as they prepare to spend a record $700 million on R&D this year. They also expressed enthusiasm for striking more M&A deals, just a few months after closing their big acquisition of Ruckus Wireless late last fall, and promoted the potential of CBRS technology. (see Ruckus Gives Arris a Boost in Q4 and Arris Hangs Hat on CBRS.)
Focusing first on the cable front, Arris executives said they see surging demand from MSO customers for DOCSIS 3.1, Distributed Access Architecture (DAA) and wireless home networking equipment and software as the industry increasingly ramps up for its latest upgrade cycle. In particular, they see demand for D3.1 and DAA gear taking off over the next couple of years.
Larry Robinson, president of Arris's CPE business, said D3.1 cable modems and WiFi home gateways accounted for roughly 10% of the company's broadband gear shipments to cable operators last year. With Arris the market-share leader in that category, he expects the D3.1 portion to jump to 75% to 80% of total shipments by 2021.
It's "a trend that's fairly consistent with the DOCSIS 3.0 migration that we experienced a couple of years back," Robinson said. "Although right now, to be completely candid, the acceleration and interest around 3.1 seems actually greater than it was for 3.0."
Going the distributed route
Similarly, Arris executives see demand climbing steeply for Remote PHY, Remote MAC/PHY and other types of DAA optical nodes and related equipment as cable operators seek to increase their capacity, ease the real-estate crunch in their headends and hubs, distribute the load down the access network and start virtualizing key network functions. In a presentation at Light Reading's Cable Next-Gen Technologies & Strategies event in Denver last week, SNL Kagan analyst Jeff Heynen projected that DAA deployments will really kick off next year after some field trials and pilot launches this year. (See Snapshot: Cable Access, a Market in Transition.)
For its part, Arris just announced that Stofa, a Danish cable operator, has launched what's billed as Europe's first Gigabit Internet service based on the Remote PHY spec. Stofa is leveraging Arris's flagship E6000 CCAP chassis with a software upgrade and NC2000 R-PHY optical nodes to support that deployment. "We think we're the first to market with a solution that supports both data and video, as well as VOD, on the same platform," said Dan Whalen, President of Network & Cloud for Arris. (See Arris Wins Remote PHY Deal With Stofa and Denmark's Stofa Launches First Remote-PHY Network in Europe.)
"There's clearly a shift to distributed access architecture," added Tim O'Loughlin, president of North American sales for Arris. "We're riding at all of our customers, whether it's enterprise or service provider, some of those natural technology upgrade cycles."
With the shift to DAA putting cable operators into the digital optics market, that opens the door for new rivals to Arris to emerge. But, while conceding that point, Arris executives claimed to be unfazed by that prospect.
"Who knew that HFC was cool again?" joked Arris CEO Bruce McClelland. "It will be competitive. There are lots of people who would like a piece of that, and it's going to grow over time. I would rather be where we are than where everybody else is."
High hopes for 4K
Despite the steady erosion of the legacy pay-TV business in the US, the world's biggest video market, Arris officials see plenty of strength left in the video business, which still accounts for close to 60% of their 50 million device shipments annually. As he has before, Robinson stressed that Arris will aim to boost its set-top market share selectively and focus on boosting margins and cost-cutting to counteract rising memory costs. There's a "maniacal focus on streamlining business operations," he said.
Arris is also counting on a technology upgrade cycle in the video market to stoke more business as the market's focus increasingly shifts to 4K/UHD and HDR TVs, set-tops and other electronics devices. He cited forecasts that 4K devices will climb from 25% of total video device shipments last year to "north of 80%" by 2021.
"There's even talk of 8K" driving some new use cases around video, Robinson said, although he noted that 8K is still "somewhat off the chart in terms of price."
Still looking for more deals
Even though the company is still digesting and integrating Ruckus, Arris executives said they are still on the hunt for more acquisitions that complement their current assets and focus on delivering "connectivity solutions" to service providers, consumers and businesses. In his remarks, McClelland said company officials are "looking for opportunities that are near-adjacencies to what we've in today, things that logically build on top of the businesses that we're in, so it's easier to get synergies." While he didn't name any specific companies on Arris's radar, he said targeted sectors include the enterprise area, security, wireless, transport and optical transmission. (See Arris Not Ruling Out More M&A.)
"One plus one equals more than two," McClelland said. "We're looking at things that are accretive to the business going forward."
— Alan Breznick, Cable/Video Practice Leader, Light Reading