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Arris Sees Rebound in Comcast Business

5/02/2008 8:00 PM Eastern

Arris Group's first-quarter revenue was hurt by a drop in orders from Comcast, but the cable-technology supplier expects that business to bounce back in the year ahead — particularly as DOCSIS 3.0 equipment starts shipping in the second and third quarters.

What's more, Suwanee, Ga.-based Arris said it had record sales to Time Warner Cable and Charter Communications in the first three months of 2008.

First-quarter 2008 revenue was $273.5 million, up 16% compared with the year-prior period, primarily reflecting the acquisition of C-COR. Arris completed its acquisition of C-COR, a State College, Pa., vendor of video-on-demand and operations support systems, on Dec. 14.

But revenue was 16% lower than analysts' previous consensus revenue estimate of $328 million, according to Thomson Financial, in line with Arris' revised forecast announced in February. The company posted net income of $5.4 million, an 86% decline from $37.6 million in the year-earlier period.

Comcast's business with Arris was down about $62 million in the quarter, particularly with respect to voice modems, Arris chairman and CEO Bob Stanzione said on a conference with analysts.

However, in the first quarter, sales to all other customers from the combined Arris and C-COR were up sequentially by about 11%, or $24 million, Stanzione said.

Specifically, “our sales to Time Warner and Charter were outstanding,” notably on cable-modem termination systems, on-demand and operations support systems.

“Arris seems to be doing a good job at managing the business all around,” ThinkEquity analyst Anton Wahlman wrote in a research note last week, calling its deal for C-COR a “very intelligent acquisition of a peer group company.”

All told, the company shipped about 1.64 million cable modems and embedded multimedia terminal adapters (eMTAs) in the period — with more than 30% of those to international customers — compared with about 1.7 million in the fourth quarter of 2007.

In addition, Stanzione said, “we expect much of this business from Comcast to rebound … especially as our DOCSIS 3.0 products are released in their network.”

Arris projects revenue in the second quarter will be in the range of $288 million to $303 million, with net income per diluted share in the range of $0.04 to $0.08.

“I remain confident that we are well-positioned to meet the insatiable demand for more bandwidth and speed, driven by accelerating entertainment and information applications,” Arris chief financial officer David Potts said on the call.

Comcast has said it expects to be aggressive in deploying DOCSIS 3.0, passing up to 20% of homes in it its territories by the end of 2008. It launched “wideband” service, with up to 50-Megabit-per-second downloads, in Minneapolis-St. Paul last month.

Overall, Stanzione said Arris is ramping up DOCSIS 3.0, with hardware shipments expected to begin in the latter part of this quarter and DOCSIS 3.0 software for CMTSs to ship in Q3. “We expect to be extremely busy” with DOCSIS 3.0, he said.

On the switched digital video front, Stanzione said Arris is seeing “slower growth” in the segment than expected and therefore the company did not ship many D5 Universal Edge QAM platforms in the quarter.

Arris during the quarter repurchased approximately 13 million shares in the open market for $76 million and also redeemed $35 million of convertible debt originally issued by C-COR and paid approximately $12 million to retire various acquisition liabilities.

The company ended the first quarter with $293.0 million of cash and equivalents, compared with $391.8 million at the end of fourth-quarter 2007.

September