Sales of DOCSIS 3.1 hardware and software will immunize Arris in particular from what will be a rough year for telecom vendors, predicts Morgan Stanley analyst James Faucette.
“This pressure on CAPEX spending, particularly from telcos, combined with disruption due to M&A activity, should continue to trickle down to equipment providers in 2017, similar to what we saw from CSCO, INFN, and FFIV as the calendar year came to a close,” Faucette said to investors in a note Tuesday. “While we note a new administration could change the CAPEX environment for carriers, we do not think this change would affect 2017 expectations.”
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Faucette said Arris will most benefit from the offset provided by operators in need of incremental enhancements to their networks.
“Cable companies are facing challenges from the disaggregation of content and move to OTT/cord cutting,” he added. “However, to combat this, they have leveraged their position as a broadband provider to continue their relationship with the customer.
“Given customers who get broadband service from a cable provider are more likely to bundle in pay-TV (for U- Verse, AT&T saw 97 percent attach rates), cable companies have every incentive to keep this relationship in tact,” Faucette also noted. “This will drive continued investment in DOCSIS 3.1 in 2017 in order to help cable companies to maintain their lead as telcos increase investments in fiber.”
Arris announced warrant agreements with both Comcast and Charter Communications earlier this year. Comcast has been an early entrant into the DOCSIS 3.1 market, and Arris has touted products including its E6000 edge router as being part of the Comcast rollout.