Two of Arris's top four customers, Liberty Global and Time Warner (TWC), have reached what appears to be peak embedded multimedia terminal adaptor (E-MTA) volumes.
As it relates to Comcast (CMCSA), RJ estimates the operator will experience modest quarter / quarter growth the next three or four quarters and peak somewhere between 650,000 - 750,000 VoIP new net-adds per quarter (up from 571,000 in March). While impressive from an operator perspective, given an E-MTA average selling price of $70-$80 (and falling over time), the firm is hard pressed to understand how Arris will continue to grow its E-MTA revenue base meaningfully.
Notablecalls: ARRS' business is about 1/3 CMTS (cable modem termination systems) and 2/3 eMTA (embedded multimedia terminal adaptor). CMCSA accounts for roughly 40% of revs.
The CMTS side carries high margins but the margins have likely peaked already and are likely to decline from here. CSCO and MOT are likely to regain share over the next couple of yrs.
It also looks like the eMTA side is no longer high growth territory. Trading 18x 08 EPS, ARRS doesn't really look like a bargain here.
ARRS 1-yr chart: