MaxLinear Stock Plunges 17% On Lower Q3 Outlook

MaxLinear’s lowered outlook for the third quarter announced Monday caused its stock to drop more than 17% and that apparently applied pressure on Arris shares, which dipped almost 7%.

MaxLinear, a maker of silicon for cable modems and set-top boxes, cut its third quarter revenue forecast to $32 million to $33 million, down from previous guidance of $36.5 million to $38 million.

The reason: a 25% decline in cable revenues related to a push-out of requests for top-of-the-line  DOCSIS 3.0 cable modems that can bond 24 downstream channels, apparently caused by a build-up in the first quarter of 2014. MaxLinear was expecting a sequential decline in cable revenues in the range of 2% to 5%.

MaxLinear’s reduced forecast was “likely the largest factor pressuring Arris stock today,” Raymond  James analyst Simon Leopold wrote in a research note Tuesday, pointing out that Arris, at 28% of revenue, is MaxLinear’s largest customer.

Arris also presented at Raymond James’ North American Equities Conference in London Tuesday morning, and Leopold said he did not attribute the sell-off of Arris shares to anything management said there, which included a reiteration of recent concerns about a possible spending pause tied to further carrier consolidation – notably the pending Comcast/Time Warner Cable and AT&T/DirecTV mergers.

Leopold said Arris maintained third quarter guidance of $1.37 billion to $1.41 billion in sales with pro-forma EPS in the range of $0.69 to $0.74, as it has already built possible market softness into its guidance “along with some share shifts from ARRIS in favor of Pace at Comcast.”

Leopold, who kept his "strong buy" rating on Arris shares, also pointed out  that MaxLinear only represents about $9 million, or less than 1% of Arris’s cost of goods sold.

MaxLinear said it’s also seeing preliminary indications of a slower product ramp for some satellite gateway platforms, too.

“We are continuing to review these trends, which could also affect our upcoming fourth quarter 2014 revenue guidance," said Dr. Kishore Seendripu, president and CEO of MaxLinear, in a statement. “Despite the near term challenges in our business, we remain enthusiastic about our long-term growth prospects and design win traction across our Cable and Satellite markets.”

MaxLinear shares closed down $1.51 (17.22%) to $29.44 each Tuesday. Arris closed down $2.09 (6.63%) to $29.44, but was up 1.94% in after-hours trading.