According to RBC Capital Markets, the recently announced 2008 2nd Quarter financial results of Arris suggest that its core customer Comcast is focused on quickly driving to 20% homes passed with DOCSIS 3.0
RBC Capital Markets Managing Director - Mark Sue commented to yours truly:
 "Arris seems to have put the worst behind it with respect to customer Comcast (again) and with a strong backlog of $206M and book-to-bill of 1.21, Arris is endorsing 3Q08 revenues of $288M-$308M." |
"Consensus was at $305M but wasn't really updated since the pre-announcement."
"Our CY09 moves from street low $0.80 to $0.85."
"The DOCSIS 3.0 upgrade may boost some visibility helping the depressed multiple (10x forward EPS), and our price target subsequently increases to $10."
"Arris posted 2Q08 revenues of $281M and non-GAAP EPS of $0.15 inline with the pre-announcement."
"International sales (31%) grew 3% QoQ while domestic at 69% also increased +3% QoQ."
"Comcast displayed further stabilization growing from 13% to 17% and Arris pointed to continued strength from this core customer from the ramp of DOCSIS 3.0."
"Comcast is focused on quickly driving to 20% homes passed with DOCSIS 3.0."
"Sales to Time Warner reached record levels (26% to 27%)."
"For the subsequent 4Q08, we're assuming a continued rollout at the major US MSOs of DOCSIS 3.0 and further international growth offset by weak housing starts, cold weather impact and uncertainty related to capex flush."
"The net of it is that we're modeling 4Q08 sequential growth of just 2% or $305M."
"Gross margins improved from 31.2% to 33.1% driven by mix: lower EMTA sales, higher CMTS and C-COR (optical access and software)."
"Gross margins may further improve from current levels as Arris moves away from gaining market share and instead focuses on higher margin opportunities."
"The earnings variability still remains high as Arris is endorsing 3Q08 EPS of $0.19-$0.24."
"Operating margins are generally moving in the right direction as Arris recognizes additional synergies from C-COR; operating margins were reiterated at 10-12% having just completed 11%."
"It's hard to say onward and forward considering the inconsistencies thus far with execution."
"And the pace of rollouts will not be linear as evidenced by the quarterly revenue fluctuations."
"Having said that the larger macro trends remain as it relates to the ramp in DOCSIS 3.0, increased international cable penetration, and Video 2.0."
"And competition among telcos, satellite, and cable isn't likely to ease anytime soon necessitating further equipment upgrades."
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