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Arris Shares Drop 10% on Q3 Results

Arris shares were down more than 10% in after-hours trading Wednesday after the tech giant said Q3 revenues dropped 13.1% due in part to sluggish set-top and gateway sales to Verizon Communications and AT&T, which just combined with  DirecTV.

Arris chairman and CEO Bob Stanzione cited “shifting” strategies at those telcos. AT&T, for example, saw a decline in U-verse TV subs in Q3 as it applied more focus on selling DirecTV service.

That shift in focus “hurt our business pretty dramatically,” Stanzione said.

Arris, which is also dealing with declines outside the U.S., posted Q3 revenues of $1.22 billion, off from the $1.24 billion expected by analysts, and posted earnings of 56 cents per share, down from 81 cents in the prior year- period. Looking ahead, Arris anticipates revenues to decline to $1.1 billion to $1.15 billion, alongside adjusted net income per diluted share of 40 cents to 45 cents, citing lower expected U.S. revenue, near-term M&A uncertainty and international growth tempered by the strong U.S. dollar.

Driven by the aforementioned telco issues, CPE segment sales dropped 14% versus the year-ago quarter, despite improved cable CPE sales and a record sales of broadband gateways and modems via retail channels.

Arris also talked up its role in supplying an advanced DOCSIS gateway to Comcast – the DOCSIS 3.0-powred XB3 will bond up to 24 downstream channels and integrate MoCA 2.0 and 802.11ac WiFi.

On the video CPE end, unit volumes dropped 11% year-on-year. A bright spot was the launch of a next-gen video gateway (the DCX3635) for Canada’s Shaw Communications that supports both Arris’s own Moxi platform and Comcast’s X1 platform. Shaw is trialing X1 after ditching its original IPTV migration strategy. 

On its fiscal Q4 call earlier this month, Shaw CEO Bradley Shaw said the MSO had launched the whole-home DVR platform with the Moxi UI, noting that it’s “forward compatible with the X1 service.” He said Shaw’s anticipates that the commercial launch of X1, which will be powered directly by Comcast infrastructure, will occur during Shaw’s 2016 fiscal year.

On the network side of the business, Arris saw sales of its flagship E6000  CCAP drop from the first half of the year (Shaw is a new customer for it), but remains on track for Q4 customer field trials of DOCSIS 3.1, according to Bruce McClelland, president of the company’s’ network and cloud unit. Arris also expects formal CableLabs D3.1 testing to start during the current quarter.

Regarding Arris’s pending $2.1 billion acquisition of U.K.-based Pace, Stanzione said he’s still enthusiastic about the benefits of the merger, and remains committed to getting the deal done. Amid additional requests from the U.S. Department of Justice and other regulatory entities, Arris now believes it will wrap up the merger by late December or the first quarter of 2016. Arris has also indicated that regulators might apply a condition to the deal that Arris divest part of its optical transmission business.

Arris and Pace shareholders have approved the deal.