Arris Angles for More Market Share
Arris, which claims to have about a quarter of the CMTS market today, relayed those expectations Wednesday afternoon during its quarterly conference call with analyst and reporters. (See Arris Posts Q1.)
One key question is where Arris expects some of that growth to originate.
One possible source is Time Warner Cable Inc. (NYSE: TWC), which "may be looking to make a major new CMTS vendor decision shortly, and Arris is a major contender," according to a research note from Think Equity Partners analysts Anton Wahlman and Eric Kainer.
They view Cisco Systems Inc. (Nasdaq: CSCO) as the "major incumbent" at TWC, though Motorola Inc. (NYSE: MOT) has secured a "modest footprint" at the MSO. As far as who might get the nod for additional CMTS business from Time Warner, Think Equity believes it's "a relatively even race" among Cisco, Arris, and BigBand Networks Inc. (Nasdaq: BBND). "But we hold Arris as a favorite in terms of probability of winning market share in this particular deal with this particular customer."
A note from Oppenheimer & Co. analyst Alan Bezoza suggests Arris might also be in line to win CMTS orders from Bright House Networks .
Arris did not cite any specific customers tied to its CMTS growth prospects, but did forecast that a move to Docsis 3.0 by cable operators "will create a market disruption" in late 2007 and into 2008, according to Jim Lakin, president of Arris Broadband.
Further, the company estimated that demand for CMTS linecards will rise four-fold if the bandwidth per cable modem subscriber and the number of simultaneous active cable modem users both double.
On the headend side of the equation, Arris believes the majority of its deployed CMTS gear can be upgraded to Docsis 3.0 through the addition of programmable linecards, freeing operators from having to perform "forklift" upgrades.
The majority of Arris's installed CMTS base can be retained in a transition to 3.0, according to Lakin.
The company estimated that its installed base of Docsis "C4" cable access modules (or linecards) numbers about 17,600.
Until Docsis 3.0 becomes a reality, Arris has found some limited success with its pre-3.0 FlexPath platform, which is designed to bond up to four upstream and four downstream Docsis channels. Some other pre-Docsis 3.0 implementations in the market are limited to bonding multiple Docsis 2.0 downstream channels.
Jupiter Telecommunications Co. Ltd. (J:COM) of Japan announced such a deployment with Arris earlier this month. (See Japanese MSO Moves 160 Mbit/s.) Lakin said Arris has secured FlexPath deployments with four other operators, yet to be named. One likely candidate is Virgin Media Business Ltd. , which disclosed a FlexPath trial in early 2006. (See Arris, NTL Try 100 Mbit/s.)
Arris also made some headway with Docsis-based customer premises equipment (CPE). In the quarter, the company shipped 1.58 million units, 15 percent better than the 1.37 million shipped in the previous quarter.
While Arris believes it can expand its share of the CMTS pie over the next three years, it also expects operators to seed the market with Docsis 3.0 modems ahead of CMTS installations, just as many MSOs did with Docsis 2.0.
"In the CPE space it makes sense to start deploying even if they don't have the capability in the network to deliver 160 Mbit/s, because Docsis 3.0 product will be backward compatible and able to deliver the lower data rates until the CMTS products are upgraded to support the Docsis 3.0 standard," Lakin said.
Competitive pressures, he added, will cause operators "to start mining out" Docsis 2.0 gear and shift to 3.0 "in a reasonable time frame -- probably in the next three years."
Another possible trend in the Docsis 3.0 era: The eventual demise of stand-alone cable modems. Lakin said operators will likely focus CPE deployments on embedded multimedia terminal adapters (EMTAs), which handle both raw Internet services and cable-delivered VOIP.
During Wednesday's call, Arris chairman and CEO Bob Stanzione also addressed questions related to any plans for acquisitions to flesh out the company's digital video portfolio, particularly after it lost its bid for Tandberg Television to Ericsson AB (Nasdaq: ERIC). (See Tandberg Board Backs Ericsson Bid .)
Stanzione argued that Arris is already well positioned in this area, because Docsis 3.0 "is a very video-centric architecture." But he said Arris could pursue acquisition opportunities if the right ones emerge.
One possible candidate in the digital video sector, RGB Networks Inc. , has already said it will seek an initial public offering before it entertains any serious acquisition offers. (See RGB: Ripe for Aquisition? )
"We would like to supplement [our Docsis 3.0 strategy] and grow even faster by making the right strategic moves," Stanzione said. "We will continue to look at other opportunities and make sure our company is in a strong position to opportunistically pounce if indeed we feel something is worth going after."
But whatever decision Arris makes, Stanzione insists his company will "have a very disciplined and orderly approach to it."
— Jeff Baumgartner, Very Disciplined & Orderly Site Editor, Cable Digital News