Arris Predicts 10% Of 2012 Sales From IP Gateways

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Arris Group is seeing its video strategy picking up momentum and expects IP-based gateways to contribute at least 10% of 2012 revenue, chairman and CEO Bob Stanzione said on the vendor's earnings call Wednesday.

Arris is now using Moxi as the new name for the home gateway product, which is based on technology acquired from Paul Allen's Digeo. In addition to Shaw Communications and BendBroadband, Arris now has six "committed customers" that are in various stages of lab and field trials, Stanzione said.

The Moxi product line could generate sales of $25 million in the fourth quarter, Arris said.

"Moxi gateway was definitely the bright spot of the quarter," he said. "The product is performing very well in trials and in the field, and deployment rates are on the rise."

Arris shipped 1.4 million customer-premises equipment devices in the third quarter of 2011 -- and for the first time, more than 50% of the vendor's CPE devices (53%) shipped in the quarter included DOCSIS 3.0 capability versus 36% in Q2.

"We're getting closer to the day when the current installed base of DOCSIS 2.0 and earlier modems are going to become obsolete," Stanzione said on the earnings call. Operators are now "willing to spend the extra few dollars to install DOCSIS 3.0 devices."

Arris hopes to push even further into the video market after completing the acquisition of BigBand Networks. On Oct. 11, Arris announced its intention to purchase the video-processing equipment vendor for $53 million net of BigBand's cash on hand. Arris anticipates closing the transaction around Nov. 21.

"Customer feedback has been uniformly positive" about the BigBand deal, Stanzione said.

Revenue for the quarter ended Sept. 30 was $274.4 million, flat compared with $274.3 million in the year-ago period. Through the first three quarters of 2011 and 2010, sales were $807.6 million and $821.3 million, respectively. Arris net income for the third quarter of 2011 was $13.7 million (versus $14.0 million in the year-ago period).

Arris shipped 73,686 downstream C4 CMTS ports in Q3, down 7% sequentially after a record 79,000 in the second quarter. The company's E6000 converged edge router is scheduled to ship in the fourth quarter to a customer for lab trials, Stanzione said.

For the fourth quarter of 2011 -- which Stanzione said has been historically hard to predict -- Arris projected revenue of between $270 million to $290 million, with net income per diluted share in the range of $0.08 to $0.12 (including charges related to the BigBand acquisition).

The fourth-quarter guidance was "mildly disappointing," Jefferies & Co. analyst George Notter wrote in a research note Thursday. For 2012, Notter raised his full-year revenue estimate for Arris to $1.25 billion (from $1.2 billion previously) but lowered net income projections to $0.70 per share versus $0.85 previously.

"While we've increased our revenue expectation for full-year 2012 on higher sales of the Moxi Media Gateway (we're looking for $184 million versus $100 million previously), this is offset by a reduction in our expectation for 2012 CMTS revenue and gross margins," Notter wrote.

In the third quarter, Comcast, Arris's largest single customer, represented 29% of revenue, with $80.2 million (up from $73.7 million in the year-ago quarter). Sales to Time Warner Cable were $33.9 million (down from $35.1 million in the third quarter of 2010).

Order backlog at the end of the third quarter was $155.3 million, compared with $119.6 million and $154.2 million at the end of the third quarter of 2010 and the second quarter 2011, respectively.

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