Video hardware

Arris Hits Still More Headwinds

Those nasty industry headwinds are continuing to trim Arris's sails, forcing the big communications equipment supplier to cut its financial guidance for the second quarter and warn of more sluggishness over the second half of the year.

In a quietly issued press release late Friday, Arris Group Inc. (Nasdaq: ARRS) said it's cutting its expectations for revenue, adjusted net income and GAAP net income by relatively small but notable amounts for the quarter that just ended June 30. In particular, the company, which will report its Q2 earnings at the end of this month, is cutting back on the higher part of its guidance range in all three areas.

Specifically, Arris said it now expects revenue to total $1.25 billion to $1.26 billion for the spring quarter, down from a previous range of $1.27 billion to $1.31 billion. It expects adjusted net income per diluted share to come in between 51 cents and 55 cents, down from an earlier range of 53 cents to 58 cents. And it expects its GAAP net income per diluted share to be just 9 cents to 13 cents, down from 17 cents to 22 cents before.

In a prepared statement, Arris Chairman and CEO Bob Stanzione once again placed the blame mainly on the uncertainty and capital spending slowdowns created by the various cable and telco merger deals that are still pending, including AT&T Inc. (NYSE: T)'s proposed acquisition of DirecTV Group Inc. (NYSE: DTV) and Charter Communications Inc. 's proposed buyouts of both Time Warner Cable Inc. (NYSE: TWC) and Bright House Networks . He cited similar factors on the company's last two earnings calls. (See Arris Braced for Continuing M&A Headwinds .)

"The headwinds we faced in the second quarter were stronger than anticipated resulting in the update to our second quarter 2015 revenue and earnings guidance," Stanzione said. "Our business continues to be impacted by external factors, most notably the various pending industry consolidations and by the strengthening of the US dollar."

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Stanzione, who earlier had expressed optimism that things would turn around for Arris in the second half of the year, also warned investors that the headwinds will likely keep blowing strong over the rest of the year. "At this point, we anticipate that these factors will continue to impact us in the second half of 2015," he said.

But Stanzione noted that Arr's pending $2.1 billion purchase of Pace plc should help boost his company's financial outlook. Despite the hitch to the deal encountered two weeks ago when the US Department of Justice (DoJ) requested additional information from both companies, he said the deal remains on track to close this fall. (See DoJ Stalls Arris Plans to Purchase Pace .)

"We expect the Pace plc acquisition to help counter some of these industry conditions as a result of anticipated synergies and a more diversified customer base and product portfolio," he said. "The combination is proceeding as expected, with regulatory approvals recently received from both Germany and South Africa. We continue to anticipate closing the combination in the fourth quarter of 2015."

In response to the announcement, Arris's share price initially fell more than 5% in after-hours trading late Friday. But the price has since bounced back to about $31 per share.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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