It’s good to be Arris. The company reported its fourth-quarter earnings last night and the headline for Arris was that its set-top box shipments increased by a whopping 43 percent when compared to the previous quarter.
That growth was spurred by increased shipments of the hybrid XG1 HD DVR for Comcast’s X1 platform, shipments to Latin America and increased shipments of its QIP box to Verizon.
On its recent fourth quarter earnings call, Comcast said it would “open up the gates” on X1 by aggressively pushing it to more of its subscribers after having deployed it across all of its systems late last year. Comcast is now making X1 available to double play customers after previously only offering it in triple play bundles, and it recently started to roll out its updated X2 guide.
Comcast and Cox are also in talks about the latter licensing a white label version of Comcast’s next generation X1 platform and user interface, which could also benefit Arris going forward. Arris is also providing the six-tuner DVR that Time Warner Cable is using as part of a planned operational upgrade that will start in Los Angeles and New York City.
“During the quarter we made great progress in the areas of product development and launch. We experienced higher demand for our traditional set tops and the Comcast XG1 came on very strong at the end of the year following the successful completion of product qualification,” said Arris CEO and chairman Bob Stanzione on the conference call
“We absolutely did have a nice quarter with respect to completing the XG1 product qualification and beginning shipments for that product,” said Arris’ Larry Robinson, president, customer premise equipment. “But we also did see ongoing demand, or improvements, quarter-over-quarter for some of our what I would call more traditional non-video gateway set tops to some of our key customers, but certainly the XG1 played a nice factor in the quarter.”
Arris’ recent set-top box success was strengthened by last year’s purchase of Motorola Home from Google, and a slump in set-top box sales by Cisco.
Arris vice president and chief financial officer David Potts said overall sales to Comcast were $223 million or about 19 percent of the company’s sales. Sales to Time Warner were $83 million or about 7 percent of sales and sales to Verizon were $150 million or about 13 percent of sales. Arris’ international sales were about 31 percent in the quarter.
Stanzione said in the second half of last year the cable industry was in a transition period from the classic CMTS platform to the CCAP platform, which started to accelerate in the fourth quarter.
Arris said its CCAP-enabled E6000 was serving more than 2 million customers by the end of the year, which doubled the amount from the third quarter. The customer base for CCAP equipment is also starting to expand worldwide with strong demand expected in the first half of this year.
Arris’ shipments of DOCSIS devices dropped in the fourth quarter after posting record numbers in the third quarter, but Stanzione said Arris was starting to see demand rebound in the first quarter.
In the fourth quarter, Arris said 87 percent of its CPE shipments were DOCSIS 3.0 and 58 percent were Wi-Fi enabled. During the quarter, Arris announced the release of IPv6 support for its wireless gateways and then deployed the software across four million devices.
Arris executives expressed optimism in the face of a possible slowdown in orders while Comcast and Time Warner Cable wait for their deal to be approved. Potts said that Comcast and Time Warner Cable were following similar technology paths with wanting to double their data download speeds, which will require more CMTS capacity, along with similar strategies for the migration to IP. The two companies also worked closely on the Reference Design Kit before forming joint venture RDK Management last year.
Using digital terminal adapters (DTAs), Comcast and Time Warner Cable are more aligned than Charter Communication’s approach, which relies on digital set-top boxes.
Potts noted yesterday’s announcement that Google Fiber planned on expanding its 1 Gbps service to 34 cities in nine metro markets.
“But with the competition and the similarities that Time Warner and Comcast have in their game plans, I see it as a pretty good year coming up and it could result even in more business for us,” Potts said.
Arris projected first quarter sales of $1.17 billion to $1.21 billion, and earnings per share to fall within the range of 42 cents to 47 cents, both of which were above some analysts’ projections.
By the numbers
In the fourth quarter, Arris posted sales of $1.19 billion, or 54 cents a share. Analysts had expected sales of $1.16 billion, or 45 cents per share. Arris’ Network and Cloud division accounted for $337 million of the total revenue while the CPE segment generated $865 million of total revenue. During the fourth quarter, Arris repaid $372.8 million of debt and ended the quarter with $513 million in cash resources. The company’s order backlog at the end of the quarter was $538 million.