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3 May 2018

Arris results show upside from Ruckus as it heads away from CPE

Arris Q1 numbers still showed a loss, but after taking out around $96 million of impairments and one or two other non-cash items, Arris said that it would have made a profit of some $78 million, up from not much more than half that figure, on revenues of $1.58 billion, up from last year from $1.48 billion, but down from Q4 when it was $1.74 billion.

CEO Bruce McClelland reported a rise in gross margin to 31.7% which was brought about by getting a more favorable product mix, making more sales in network, cloud and enterprise and less in CPE (customer premises equipment). Quietly Arris seems to be heading away from being a set top company – so why did it buy Pace?

McClelland also cited wins at Telefónica and Liberty Global in the quarter and said one of the main drivers for business was bringing Gigabit per second broadband to the world – all DOCSIS 3.1 and E6000 CCAP routers including Remote PHY versions – and that there is also demand for cloud-based managed service deployment models, like those that Ruckus specializes in. He also cited the Ruckus based CBRS LTE small cell initiative as a future revenue stream. Ruckus contributed $170 million to the quarter more than 10% of the business.

McClelland also pushed the idea that the Arris international set top business remains fine, but there is evidence in the last few days that more and more countries are seeing cord cutting for the first time – suggesting that it will not be healthy in set tops for much longer, but Arris probably has 5 years to exit or transform this business cost-wise.

The CEO highlighted the OEM deal with Dell EMC for it to sell Ruckus access points, controllers, virtualized and data analytics assets and its Cloudpath secure network access software.

He was asked at the results meeting about whether or not X1 shipments to Comcast in the US could be interrupted by TiVo legislation, but he seemed certain that could not happen. Our feel is that Comcast never defaults and if the case goes against it, it will license the technology that day and carry on as if nothing happened.

Arris says that its cash position strengthened to $543 million, generating $96 million in the quarter, and buying back around $25 million of shares and it gave guidance for the coming quarter of between $1.76 billion and $1.81 billion with margins slightly down, due to a change in shipment mix.