Arris Drives Up Q2 Profit On CMTS Sales

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Arris's second-quarter revenue dropped 0.9% from a year ago, but the cable-equipment supplier boosted both gross margin and net income on what it said were strong sales of cable modem termination systems.

Revenue was $278.5 million, down 0.9% from $281.1 million in the year-ago quarter. Net income tripled to $22.9 million, compared with $7.8 million in the second quarter of 2008.

"Arris is a healthy company, and we're operating in a healthy segment of the economy," Arris chairman and CEO Bob Stanzione said on a conference call Thursday with analysts.

On the CMTS side, Arris shipments in the quarter were more than 60% DOCSIS 3.0 with the rest DOCSIS 2.0. Arris's consumer-premises equipment shipments were down 4% sequentially, to a total of 1.27 million devices, as "the weak economy continues to affect demand," Stanzione said, but added, "I see the DOCSIS 3.0 wave picking up as the year goes on."

Sales to Comcast represented $96.7 million (or 35% of total revenue) in the quarter ended June 30, more than double the year-ago period. Time Warner Cable sales were $52.9 million (19% of revenue) versus $75.3 million last year.

Arris's gross margin in the second quarter 2009 was 42.1%, up from 37.7% in the first quarter and 33.0% in the second quarter of 2008. The company said the improvement reflects strong CMTS sales, as well as a 42% year-over-year increase in sales in the Multimedia Communications Systems unit. "We have a very different margin profile in the company than we did a year ago, and we think we can sustain it," Stanzione said.

Stanzione noted the company improved profitability without cutting expenses, as Arris increased research and development spending 9% year over year, to $30.1 million.

The company ended the second quarter 2009 with $524 million of cash and short-term investments, up about $100 million from the end of the prior quarter. Long-term debt was $205.7 million versus $206.9 million in the year-ago period.

Arris in the second quarter shipped 30,852 upstream and 32,005 downstream CMTS channels; 314 CMTS chassis; and 1.186 million voice-data modems and 79,630 cable modems.