Arris shares could face pressure after one of its key manufacturing partners whiffed on its fiscal Q2 financial results, according to Raymond James analyst Simon Leopold.
Plexus sales for the period were $604.4 million, down $30 million, or about 5%, below expectations. The largest portion came way of Plexis’s Networking & Communications segment, which came in at $16.8 million, about 13.4% below estimates. Plexus also forecast June sales of between $595 million to $625 million, well below consensus for $688 million.
This is all of potential concern to Arris, Leopold said, because it uses Plexus to manufacture its cable modem termination system (CMTS) platform, which represents the largest piece of Arris’s Network and Cloud unit. Arris is responsible for about 10% of Plexus sales.
“The announcement could present risk to ARRIS’ 1Q17 results; however, past results from Plexus have not always aligned with ARRIS’ results by quarter,” Leopold wrote. “The weak Plexus results may already reflect the lower outlook reported by ARRIS last quarter.”
Leopold also pointed out that Arris is undertaking a CMTS “product refresh, so a pause has been ongoing,” and doesn’t see much risk to his firm’s Q2 2017 estimate for Arris, which stands at $1.63 billion, reflecting a 10% increase version the previous quarter, and 6% year-on-year.
Despite the potential risk from Plexus's Q2 results, Leopold maintained his “Strong Buy” rating on Arris shares.
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