Sponsored By

Arris Needs Pace to Help Recoup Telco LossesArris Needs Pace to Help Recoup Telco Losses

Slumping telco sales continue to hurt Arris earnings.

Mari Silbey

October 29, 2015

4 Min Read
Arris Needs Pace to Help Recoup Telco Losses

It's been a tough year for Arris. With yet another disappointing quarter on the earnings front, Arris is pinning its latest losses on slumping telco sales, uncertainty around industry mergers and acquisitions, and a strong dollar that's having a negative impact on international budgets.

The results look even worse when matched against a stellar year in 2014. As compared to revenues of $1.41 billion in the third quarter of last year, revenues in Q3 of 2015 were down 13.1% to $1.22 billion. Earnings were also down 3.1% sequentially, slipping from $1.26 billion in the second quarter.

Arris Group Inc. (Nasdaq: ARRS) CEO Bob Stanzione was blunt on the company earnings call about the effect of lower spending by AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ). The AT&T spending cuts are particularly notable because of that telco's decision to move away from its U-verse video platform, which Arris supports with its IP set-tops, and toward the DirecTV Group Inc. (NYSE: DTV) satellite video model, for which Arris isn't a CPE supplier. (See AT&T Has Its Mobile Video Moment.)

"In 2014, our business with the US telcos was at a peak. It was very strong in 2014," said Stanzione. "When AT&T announced its acquisition of DirecTV, it decided to move pretty rapidly over to satellite delivery of video, so that has definitely hurt our business this year."

The lower revenue from AT&T could be at least partially offset if Arris's proposed deal to acquire Pace plc gains regulatory approval. Pace does significant set-top business in the satellite TV market and counts DirecTV as one of its customers.

Given the recent delays in the US government's review of the merger, however, Stanzione acknowledged that Arris might have to make concessions in order to complete the deal. Regulators have requested more data on the pending transaction and may have reservations about consolidating too much market power in one company. (See Arris/Pace Merger Faces Regulator Delays.)

Despite possibly having to adjust the parameters of the acquisition, Stanzione said, "We remain committed to getting this deal done."

On the plus side for Arris, the company still has a lot to look forward to in 2016. While cautioning that lower revenues are likely to continue in the fourth quarter, Stanzione also pointed to several promising trends leading into next year. The launch of DOCSIS 3.1 and a continued push by operators to keep up with bandwidth demand, not to mention the expected closing of several operator M&A deals, should drive spending upward, he said.

On the CPE side, Stanzione noted that the company's mix of product sales has definitely shifted away from video set-tops and more toward data gateways. "It is clear that the data gateway business has been the star performer," said Stanzione.

Stanzione also suggested that Arris could see a rebound in one area of telco spending once Frontier Communications Corp. (NYSE: FTR) completes its takeover of Verizon FiOS systems in California, Florida and Texas.

"I think Frontier will invest in expanding. That is fabulous plant," said Stanzione, referring to the infrastructure that Frontier is acquiring.

Bruce McClelland, Arris's president of network and cloud, touched briefly on the potential for growth through the company's joint-venture ownership of ActiveVideo with Charter Communications Inc. . McClelland said the promise of the ActiveVideo technology is the ability to take both an advanced user interface experience and OTT video content and translate them into a format that can be rendered on legacy set-tops.

"The end game is really virtualizing some of those functions," explained McClelland. He added that there is a lot of customer interest, particularly in international markets.

Want to know more about pay-TV market trends? Check out our dedicated video services content channel here on Light Reading.

While sales of video hardware are on the decline overall, Stanzione noted that operators are ramping up efforts to compete with OTT rivals, and that has positive implications for Arris. Stanzione cited Comcast's investment in X1 as a strong example of a cable company deploying its resources to stay competitive. And he noted that Arris won new business this quarter with Shaw Communications Inc. in Canada, which is licensing the X1 platform. Shaw has signed a deal for Arris video gateways, and, separately, for Arris' E6000 CCAP product.

Other key customer wins for the quarter include the announced deployment of Arris's cloud-based Moxi Whole Home video solution by TDS Telecom , and a project with Suddenlink Communications to deliver WiFi to commercial customers.

Arris has suffered through a series of difficult quarterly earnings reports, but Stanzione remained optimistic at the end of the Q3 presentation. "2016 looks very promising," he concluded.

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

About the Author(s)

Mari Silbey

Senior Editor, Cable/Video

Mari Silbey is a senior editor covering broadband infrastructure, video delivery, smart cities and all things cable. Previously, she worked independently for nearly a decade, contributing to trade publications, authoring custom research reports and consulting for a variety of corporate and association clients. Among her storied (and sometimes dubious) achievements, Mari launched the corporate blog for Motorola's Home division way back in 2007, ran a content development program for Limelight Networks and did her best to entertain the video nerd masses as a long-time columnist for the media blog Zatz Not Funny. She is based in Washington, D.C.

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like