International opportunities will play a major role in Arris’s future and pave the way for growth, the telecom supplier said Wednesday at its Investor Day in New York.
"We are focusing intensely on international,” Bob Stanzione, Arris’s chairman and CEO, said. “We’re structured to gain international share,” he added, a reference to the new corporate makeup of Arris following its acquisition of Pace plc in January.
Ron Coppock, who leads Arris’s international sales team, discussed how the company will be targeting the international opportunity. For starters, it’s a bigger market – the U.S. represents about 104 million subs, while the rest of the world represents about 721 million.
“That’s our opportunity in a nutshell,” Coppock said, noting that it involves not just cable operators, but a mixture of telcos, satellite and wireless service providers.
But the challenge, he added, is that it’s an aggregation of multiple markets and demographics, regulatory environments, fragmented product lines, as well as a variety of services that drive different levels of ARPU.
Arris, he said, must build scale and commonality to drive and grow that part of the business. To help to achieve that, Arris has set up a standalone international operation based in the U.K. that will develop products specific to these global markets.
Even as Arris looks ahead, Stanzione addressed the “headwinds” the company encountered last year as some telco customers reduced spending (AT&T, for example, “pivoted hard” from U-verse TV to DirecTV’s satellite TV platform), Verizon’s divestiture of a portion of its FiOS footprint to Frontier Communications, currency pressures due to the strong dollar, and the turbulence caused by the consolidation of service providers.
The Verizon-Frontier deal, he predicted will be a “good thing” for Arris because there’s an expectation that Frontier will look to expand the FiOS footprint it’s acquiring and to spend more aggressively.
“We think [telco spending] will turn around this year,” Stanzione said.
Pace Integraton 'Going Well'
Stanzione also offered an update on the integration of Pace, saying it is “going well.”
But he also acknowledged that it was “heartbreaking” in the sense that it has also resulted in a workforce reduction (Arris last month confirmed that it was cutting about 10% of its global workforce) as well as the recent closing of some facilities, including those based in China (Hangzhou), Israel (Tel Aviv) and Argentina.
“I think we’re over the hump in terms of these reductions,” Stanzione said, adding later: “We’re executing on a strong synergy plan.”
He also referenced some "dis-synergies" that are coming about from the Pace deal with some clients that were sourcing key products from both Arris and Pace. While the merger gave Arris a virtual 100% share position in some product areas with select clients, a number of those customers have policies that prevent them from buying from a sole source for “high-running, critical products,” which will end up reducing Arris's share in those situations, Stanzione explained.
That said, Arris provided guidance that it will pull in between $6.6 billion to $6.8 billion in sales in 2016 (growth of 37.6% to 41.7%, thanks in large part to the Pace merger), and non-GAAP earnings per share of $2.45 to $2.60.
Arris ‘Not Terribly Concerned’ about FCC Set-Top Rules
Part of the morning’s focus was on Arris’s set-top business and how the FCC’s vote to approve new proposed STB rules could impact the company’s share of the pie.
“We’re not terribly concerned about this FCC drama,” Stanzione said, noting that Arris has been selling retail cable modems for years, yet most rent.
Larry Robinson, president of customer premises equipment, said moved by the FCC effectively put the potential for a retail set-top market back on the table, but noted that the FCC anticipates a possible two-year compliance window and that standards have yet to be set or defined.
“I don’t know if this is ultimately a big swing item for us,” Robinson said, but said it could accelerate the transition to IP in and out of the home.
But if those rules do spark a solid retail market for STBs, “it’s one we’re very well-positioned to support.”
As for the larger IP video migration, Robinson said it will be a “multi-year journey” for cable operators, noting that the video gateway and the broadband gateway will continue to converge.