Arris sees 13.1% decline in Q3 revenue amid sluggish CPE sales with AT&T and Verizon

Arris reported third quarter revenue of $1.22 billion, down 13.1 percent year over year, with continuing slow sales to U.S. telco companies AT&T and Verizon dragging down the network equipment vendor's CPE business. 

Arris also saw significant downturns in international sales, with markets like Brazil hit hard by the strong U.S. dollar. The company's revenue performance missed analysts' average forecasts of $1.26 billion. 

Overall, Arris reported a 14 percent decline in its customer premises equipment (CPE) segment, blaming primarily what it termed "shifting business strategies" for AT&T's (NYSE: T) U-verse platform and Verizon (NYSE: VZ) FiOS for the downturn. Arris is the world's largest CPE vendor.

Arris said it expects to see continued softness from these U.S. telcos, as AT&T continues to push its emphasis away from U-verse video subscriber growth and towards DirecTV. Arris' video CPE unit volume declined year-over-year by 11 percent, for example.

"In 2014, our business with the U.S. telcos peaked -- it was very strong, particularly in the first and second quarters," said Arris Chairman and CEO Bob Stanzione. "When AT&T announced its acquisition of DirecTV, they decided to move very rapidly to satellite. That, of course, hurt our business pretty dramatically."

Arris' pending $2.1 billion acquisition of Pace helps significantly here, Stanzione added, since Pace serves the satellite market.

Meanwhile, Stanzione expects Frontier's acquisition of Verizon's FiOS assets as also helping Arris in 2016. "I think Frontier will invest in expanding FiOS," he said.

Arris is also optimistic about a range of new deals with North American operators. For example, Canada's Shaw Communications just signed on to deploy Arris' DCX3635 video gateway, a device that not only supports the Moxie video interface, but also Comcast's X1 video system. Shaw has entered into an agreement with Comcast (NASDAQ: CMCSA) to license X1, and is currently in trials with the platform. 

Meanwhile, Arris is also reporting better news out of its networking and cloud segment, where sales were up 3 percent year over year. Arris reported strong growth in capacity licensing shipments for its E6000 converged cable access platform (CCAP). And it's expecting robust sales of DOCSIS 3.1 networking gear in 2016 as operators ramp up deployment of the technology.

As for the Pace acquisition, Stanzione told investors he believes that it's "just a matter of time" before the deal closes, which he expects to happen in the first quarter. "We're still optimistic we're going to get a clean go-ahead from the DOJ," he said.

Arris said earlier this month that the U.S. Department of Justice has requested additional information about "certain optical transmission products," and that its proposed $2.1 billion purchase of Pace won't close until at least late December.

For more:
- read this Arris earnings release

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Arris sees 18% drop in CPE revenue as U-verse and FiOS business craters