Arris Posts Flat Q2 Sales

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Arris Group's second-quarter revenue was flat with the year-ago period and net income dropped, although sales to Comcast and Time Warner Cable -- its two biggest customers -- rebounded "considerably" from the previous quarter, chairman and CEO Bob Stanzione said on the company's earnings call Wednesday.

While Arris expects strong sales of DOCSIS 3.0 cable modems and other customer-premises equipment to continue, the company anticipates a short-term decline in revenue from cable-modem termination systems.

Revenue for the quarter ended June 30 was $280.4 million, roughly flat versus $278.5 million in second quarter 2009 and up $13.7 million sequentially. Net income dropped 14%, to $19.8 million for the second quarter.

Comcast's orders for DOCSIS 3.0 CPE were higher in the June 30 quarter and Arris won a significant share of Time Warner Cable's CMTS business for the year, Stanzione said.

Arris shipped almost 1.4 million DOCSIS 2.0 and 3.0 units in the second quarter, up 18.4% from the previous quarter -- and the highest level in the past six quarters, according to Stanzione. DOCSIS 3.0 devices accounted for 24.5% of units shipped in the second quarter, up from 14% in the first three months of 2010.

"We've been waiting for this DOCSIS 3.0 [consumer-premises equipment] business to take off, and it's a good sign," Stanzione said.

CMTS downstream port shipments totaled about 41,000 in the quarter compared with 32,000 in the second quarter of 2009. 

Bruce McClelland, president of Arris's Broadband Communications Systems group, said there's a "natural shift" in cable operators' capex toward CPE to use CMTS capacity that's in place, and that CMTS deployments are more project-oriented and thus more "lumpy" in terms of revenue from quarter to quarter. Stanzione added that part of the softer CMTS outlook is due to customers that
are first deploying DOCSIS 3.0 ramping more slowly than expected.

Comcast accounted for $66.3 million of Arris's second-quarter revenue, up from $46.3 million in the first quarter -- but down from $96.7 million in the second quarter of 2009. Sales to Time Warner Cable totaled $52.9 million in the second quarter, up from $41.1 million in the first quarter of 2010 and flat with $52.9 million in the year-ago period.

Stanzione noted that after Arris demonstrated a prototype of an IP video gateway at the 2010 Cable Show in May, it delivered working hardware and software to initial customers for lab trials. The vendor expects field trials to begin by the end of 2010. He also said Arris booked its first revenue for the Fixed Mobile Convergence product with a North American MSO.

"The second quarter closed in line with our expectations and I continue to believe that we are well positioned for long-term growth," Stanzione said in prepared remarks. "I am particularly encouraged by our progress related to future products that will enable hybrid and full IP video architectures that our customers are now exploring."

Arris expects third quarter 2010 revenue to be in the range of $270 million to $290 million, with net income per diluted share in the range of $0.07 to $0.11. Wall Street analysts had expected revenue of $300.5 million and earnings of $0.27 per share, according to Thomson Reuters.

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