Arris chairman and CEO Robert Stanzione declared that the supplier of video and broadband gear is off to a “good start” as revenues rose 33% in the first quarter, but paired that optimism with concerns about possible pauses on the horizon in the second half of the year amid ongoing consolidation of some of its largest customers.
In its first earnings call since closing its acquisition of U.K.-based set-top maker Pace plc in January, Arris pulled in Q1 revenues of $1.61 billion, up $399.5 million, or 33%, versus the year-ago period. Aided by the addition of Pace, revenues were also up 47% versus the previous quarter. In Q1, Arris has three customers that represented 10% of more of revenue – together, those customers brought in $840 million, or 52% of total sales. Q1 sales beat Wall Street's expectation of $1.58 billion.
“We're off to a good start in 2016 and I can say that we're increasingly confident that we'll meet the 2016 financial goals that we outlined in our,” Stanzione said, referring to full-year guidance of between $6.6 billion to $6.8 billion in sales, and non-GAAP earnings per share of $2.45 to $2.60.
Arris expects second quarter sales of between $1.67 billion to $1.72 billion, and GAAP earnings of $0.09 to $0.14.
As for caution about the second half of the year, consolidation activities, such as Charter Communications’ pending deal for Time Warner Cable and Bright House Networks, “give me some degree of concern that there might be a pause,” Stanzione said. “I don't think there's any reduction in the end demand for our products, but there could be some shifts.”
However, telco spending, a recent trouble spot for Arris, is starting to recover, Stanzione said, noting that Frontier Communications is expected to be aggressive with upgrades following its acquisition of some of Verizon’s wireline properties in California, Texas and Florida. He also expects to see “more uplift” as the year goes along from AT&T/DirecTV now that they are starting to ramp up new programs.
Among individual product areas, Arris’s flagship cable access platform, the E6000, hit record revenues as well as total downstream and upstream channels shipped and downstream software licenses, according to Bruce McClelland, president of Arris’s Network & Cloud and Global Services unit.
Arris, which is already involved in most of Comcast’s initial DOCSIS 3.1 deployments, also inked a commercial agreement with a tier 1 international operator to deploy the vendor’s D3.1 products later this year, but didn’t identify the MSO.
McClelland said Arris in Q1 made its software release for D3.1 generally available. Arris is also working on second-gen line cards for the E6000 that will supportdirect fiber, passive optical network interfaces, and support for the new distributed access architectures. “The first of these new cards will begin field trials in the third quarter,” he said.
Stanzione was also asked to weigh in again on the FCC’s proposed set-top rules, which could impact Arris, the world’s largest supplier of set-tops.
“In the worst case, if it were to be enacted exactly the way the FCC is proposing, that would open up a retail market, one which we're pretty excited about anyway,” Stanzione said, pointing to a new retail home networking products launched by Arris last month that uses a combo of WiFi and G.hn-based powerline technologies. “We're building up our retail channel and I think even if it goes in a direction that we don't like, we would still be okay and I think the effect is couple years away.”
Update: Raymond James analyst Simon Leopold maintained his "Strong Buy" rating and a $33 price target on Arris following Q1 results. Arris shares were up 96 cents (4.15%) to $24.09 each in mid-day trading Thursday.
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