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Pace Packs Big Punch for Arris

Arris revenues skyrocketed in the first quarter, thanks in large part to the integration of Pace, which Arris acquired in January. The numbers beat Wall Street expectations, with total revenues tallying $1.61 billion versus analysts' consensus estimate of $1.58 billion. Earnings per share reached $0.47 in the first quarter, while analysts had pegged the number at only $0.40.

Because of the addition of Pace revenues to the legacy Arris Group Inc. (Nasdaq: ARRS) business, sales for the customer premises equipment (CPE) division increased to $1.09 billion, up 64% from the fourth quarter of last year, and up 33% compared to Q1 of 2015. Sales for the network and cloud business hit $524.2 million, a rise of 20% sequentially and 66% year over year.

Aside from the volume added by Pace in the first quarter, the other big story line in Arris's earnings report was the anticipation of growth moving forward. The company has an order backlog of $1.34 billion, and Arris estimates that revenues will jump to somewhere between $1.68 billion and $1.73 billion in the second quarter.

The participation of Arris in Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s near-term DOCSIS 3.1 market rollouts may have something to do with that estimate. (See Arris Nabs 4 Out of 5 Comcast D3.1 Markets.)

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Part of the optimism for the rest of the year stems from the fact that the US service provider market finally appears close to completing its consolidation efforts of the last two years. Uncertainty over merger and acquisition activity has held back spending among the major operators, but it looks like that situation is about to change.

Frontier Communications Corp. (NYSE: FTR) recently closed on its acquisition of three Verizon Communications Inc. (NYSE: VZ) markets and is expected to invest in system upgrades in the near future. (See Frontier Takes Over FiOS Tomorrow.)

Meanwhile, both Altice and Charter Communications Inc. have moved closer to closing their respective deals with Cablevision Systems Corp. (NYSE: CVC) and Time Warner Cable Inc. (NYSE: TWC) plus Bright House Networks . There is a very reasonable chance that both Altice and Charter will complete their transactions before the end of the month.

Arris CEO Bob Stanzione still expressed some caution about the second half of the year, noting that not only do two major service providers still have deals to close, but that Arris itself is introducing new products to market, which always carries some risk of volatility. In the network business, Arris will launch its next-generation line card for the E6000 CCAP chassis with support for PON and Remote PHY. On the CPE side, Arris will begin rolling out new DOCSIS 3.1 modems.

Stanzione noted that Arris has previously had difficulty keeping up with demand for its CCAP hardware, but that he believes recent improvements in supply chain operations should improve the situation. In the first quarter, Arris reported record sales of E6000 hardware, as well as downstream and upstream channels and software licenses.

Among other noteworthy items in the earnings report, Arris said that it has signed a contract with a Tier 1 international customer for DOCSIS 3.1 CPE. And on the access side, Arris announced that it has introduced a new optical node that includes Remote PHY capabilities. (See also Cable's Great Debate: How to Split Functions and Cisco Open Sources Remote PHY Device.)

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

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