In a record quarter for earnings, Arris posted EPS of $0.88 in Q4 and revenues of $1.74 billion. Earnings were not only well above Arris's own guidance from three months ago, but also beat Wall Street projections of $0.77 per share, according to Zacks analysts.
Most notably, Arris Group Inc. (Nasdaq: ARRS) had good news to report after only one month of activity with Ruckus in house. (That acquisition closed on December 1.) CEO Bruce McClelland said on the company's earnings call that Ruckus produced a "meaningful improvement in gross margins" through its sales in the enterprise sector, and that there has already been some successful cross-selling of new Ruckus products to traditional Arris service provider customers.
After several delays in closing the Ruckus deal, McClelland also emphasized that the company's channel partners are now reassured about their relationships going forward. Added to that, Ruckus signed a major new channel agreement in the quarter, which it announced just before the earnings were released. Dell EMC has signed on to brand and market Ruckus wireless solutions, which it will sell to enterprise customers around the world. (See Ruckus Inks OEM Deal With Dell .)
Broadly speaking, the early traction with Ruckus is a positive sign for Arris as it expands both in the wireless networking sector and to new customer targets outside the service provider market. (See Arris Reels in Ruckus – Why I Like This Deal.)
In other good news, Arris continues to expand its network and cloud business, which is helping to offset declines in customer premises equipment sales. The network and cloud division brought in revenue of $596 million in Q4, up from $557 million in Q3, based in no small part on strong sales of the company's second-generation E6000 CCAP platform. The business is also benefiting from the cable industry's migration to DOCSIS 3.1 and growing interest in Arris's professional services offerings, which are helping to improve profit margins.
International sales across Arris are also on the rise.
On the down side for Arris, the CPE business dropped in Q4. Revenues were $1.09 billion, down from $1.17 billion the previous quarter and $1.26 billion in the year-ago period. The big decline was in video set-tops, where revenue decreased 13% year over year and the cost of memory is putting pressure on pricing. Broadband CPE, on the other hand, saw a rise in revenue of 7% year over year, with roughly 10% of devices shipped falling in the DOCSIS 3.1 category.
Broadband devices currently make up 40% of sales in the CPE business, a percentage that has stayed roughly flat over the last 12 months.
Coming up in 2018, Arris expects more success in the DOCSIS 3.1 department and is bullish about its Remote PHY products as cable companies move toward distributed access architectures (DAA). Arris is already in DAA trials with customers. Those trials should move to commercial deployments later this year.
With Ruckus, McClelland noted there has already been strong interest in the company's neutral host LTE small cell products, and that commercial trials of Citizens Broadband Radio Service (CBRS) products -- a technology Arris is betting heavily on -- are likely later in the year. (See Arris CEO: Software Isn't Everything.)
The CEO also highlighted Arris's plan to invest in research and development around 802.11x wireless devices in 2018, and left one tantalizing clue about how the Ruckus portfolio could evolve in the future.
"We're making focused investments around IoT and advanced analytics that leverage the scale and extensibility of the Ruckus platform," said McClelland. "I expect these targeted investments to lead to an expanded portfolio of products and services in 2019."
— Mari Silbey, Senior Editor, Cable/Video, Light Reading