|Thanks 1gw - interesting - makes me feel that it could be two lost years - but that assumes that what are adjustments for lost margin will stick - I doubt that somehow and perhaps seeing copper come off the boil - the second quarter and beats this year could resume the trend - but $30 feels distant again albeit sure and there is much more to squeeze out of that financial/business model yet - and dare I say a hoped for growth perspective - though will actually be nice to have a bit of a snooze through it all finding its feet again and to invest some time in a golf game recovery.|
Looks like the new estimates are now in on the Arris site. 8 estimates all revised down for 2017 with a mean reduction of 20%:
2017: $2.53 median, $2.51 mean (per share, non GAAP)
Before results came out there were 9 estimates with $3.13 mean and median.
For 2018 they now have 6 estimates vs just 4 before the results:
2018 $2.92 median, $2.88 mean down from $3.33 median, $3.39 mean
Median down 12%, mean down 15%
Just a couple of estimates reported for 2019: $3.16 and $3.29.
|About 1,931 km (1,200 miles) off the southeastern coast of Africa exists the small ocean island known as Mauritius. What appears to be the impossible - its most famous feature, an underwater waterfall near the island’s southernmost tip - is actually created by the water currents affecting shifting sand dunes, creating the illusion of a waterfall.
You can see the phenomenon yourself by zooming in using Google Earth.
The Venice in Opole
Opole, Opolskie, Poland|
|There are few things in life as eerie as China’s neon-lit cityscape at night. The glow casts almost a magical hue on the city, transforming mundane things into almost ethereal experiences.
The American Falls with Full moon at dusk lit - Niagara Falls, Ontario, Canada|
|Why ARRIS International plc Fell 15% Today
Raymond James analyst Simon Leopold, who has a Strong Buy on the stock, and a $36 price target, writes that the outlook was “shocking,” but that it’s not as bad as it looks, just confusing.
Basically, some spending got pulled into Q4 from Q1:
While we and many investors felt consensus was high for the March quarter, the 1Q17 forecast for a 17% q/q decline was shocking. However, the sales outlook isn’t too bad when one considers that the sum of 4Q16 and 1Q17 is similar to our prior estimate and management expects the balance of 2017 to be similar to the same period of 2016 or $5.24 billion. We believe top customers Comcast and Charter had an incentive to meet 2016 spending targets related to their ARRIS stock warrants. Of more concern is the suggestion that gross margin will experience a 100-200 bp headwind from higher memory costs, and this is the primary source for EPS estimate reductions.
Furthermore, he’s enthusiastic about the acquisition:
The report was preceded by thoughts of a Ruckus acquisition (link), but at $800 million, the deal is less than the $1 billion we previously assumed and the $1.5 billion Brocade paid last May. It also includes campus Ethernet switches. With the pending sale of Brocade to Broadcom, we think the seller was motivated, and ARRIS management has expressed interest in WLAN for a while. We envision execution risk, but regard the deal positively and believe it can be $0.26 accretive to 2018 EPS.|
|jzingales - how deeply have you gone into this? It is something that at first glance looks out of whack, especially on the R&D side, but does that mean Arris is bloated or was Pace running on empty or riding Arris' coat-tails?
It's a bit unfair to look at 2016 accounts I think as this is clearly a transition year and so opex ratios are likely to be distorted. But if you look at 2015 accounts, Arris was roughly twice the size of Pace in revenue terms, but with an apparently much higher gross margin:
Arris: $4.8bn revenue, $1.4bn gross margin (30% gross margin)
Pace: $2.3bn revenue, $446m gross profit (20% gross profit)
$417m Arris Selling, G&A expenses (9% of revenue)
$155m Pace other admin expenses (pre-exceptionals) (7% of revenue)
$534m Arris R&D (11% of revenue)
$83m Pace R&D (4% of revenue - or 3% of guided revenue)
So it is R&D which really stands out and Arris continually prides itself (i.e. puts up charts) on the amount of R&D spend it does. Now does the higher R&D somehow correlate with the higher gross margin, or was Pace punching above its weight? Didn't Pace have a reputation as being everyone's favourite "second source" at one point - so was Pace deliberately staying just off the "pace" in the R&D race? That's not really sustainable when you're the clear market leader.
I don't know what the answer is, but it is an interesting point.
Errors excepted of course.|
|For what it is worth......This company needs a diet --- OPEX / CAPEX... Ruckus is good and will help diversify the business more but they are not good at integrating companies.... look at Pace's OPEX and add on the few pieces of business Pace didn't participate in and compare --- out of control. The same exact thing can be said about Motorola - not properly integrated. Good strategy but bad execution ..... the top line was bound to slip - they are not growing Intl and at some point the US customers will diversify to a 2nd source --- the issue is they are not ready for this.... they will not make the hard decisions and purchase an asset to cover up their lack of tough decision making....they need to do both - then this Company will take off.....|
|Rethinkresearch have an article on the latest news|
|I've just bought some at $26.09.
I've been back through the webcast transcript and I do like the story. Although 200 basis points on gross margin would be a chunky hit, they clearly intend to "obviate" as much of this as they can.
I like the story around the acquisition as well - looks like a good use of cash to me and potentially a complementary product offering as well as the start of a new growth area. They've talked about getting something on the wireless side for a long time (it was on their initial shopping list I think before they bought Pace).|
|Maybe a buying opportunity?? We are back to where we were in November 2016.|
|I sold a few... yoyo for the next few months...
Ruckus wireless is a decent acquisition and should help diversify but might take time...|
|It could be a long 12 months, still thankfully I don't require any funds so will sit it out, well used to this being a long time Pace holder, still it's amazing when you look at the market cap now and see the values paid for Motorola Home, Pace....😂|
|Every year I regret not selling up....... And no f'ing divi.|
|graph in header shows pre-opening currently around 26.50 :-(|
Needham & Company analyst Richard Valera maintains Buy rating and lowers price target on ARRIS International (NASDAQ: ARRS) to $32 (from $35), noting the BRCD Campus Networking business acquisition, as the company reported 2016 fourth quarter revenue and EPS ahead of consensus, but offered weak 2017 first quarter guidance.
Valera comments, "ARRS' 4Q call was at best a mixed bag. Positively, the company reported upside 4Q results and announced the speculated-upon acquisition of Brocade's Ruckus Wireless and campus switching products, which we estimate could be ~$0.30 accretive in C2018. Negatively, 1Q17 guidance was well below consensus, and guidance for all of '17 called for 100-200bps of potential GM pressure from supply chain cost pressures. Combined, these drive a C'17 outlook materially lower than we had previously been expecting. While disappointing, we expect ARRS results to improve as '17 progresses and mix improves, and we believe the closure of the BRCD deal with drive solid accretion in '18. As such, we maintain our Buy rating; PT to $32 (was $35), or ~11x our preliminary post-acquisition C2018 NG EPS estimate."|
|Alex - re your "what does this summary really mean?" comment.
My take, listening to the call last night, was that Bruce McC sees the underlying business as inherently cyclical in certain aspects. The first is the tendency of customers to pull stuff forward into 4Q when calendar year budgets allow - so he sees some of the 1Q guidance miss as a direct consequence of the 4Q beat. The second is on cost inflation - at the moment there are some headwinds from memory chip pricing, but in the past there have been "windfall" gains from component deflation.
But away from this cyclicality he wants to celebrate the 2016 performance and he is very bullish about the longer-term trends - multi-year refresh cycles coming through and an ever-increasing need for bandwidth. And obviously he believes in the acquisition he's just announced.
The difficulty perhaps for analysts and shareholders is to judge what is a reasonable underlying trend to build into our models. Are we coming off an unsustainable peak and reverting back to trend, or are we entering a dip which will mean-revert upwards in due course?
Incidentally, updating my own spreadsheet just now, I noticed that adjusted eps increased by 70c in 2016 (from $2.16 to $2.86), which was exactly the guidance on accretion (in the first 12 months) due to the Pace acquisition.|
|Currently in the North Sea about 80 miles off Skegness heading towards Andalsnes, our first port of call on our way to the north of Norway.
Mixed feelings when I logged on this morning, my Airbus, LLOY and CCL are doing really well but Arris which I thought would rise, now looks to be heading south.
I agree with Andy on Arris and still feel there is recovery later this year so I will be holding.|
|What does this summary really mean?
Bruce McClelland - ARRIS International Plc
Yeah. Obviously, we are super excited about this new announcement today, recognize it's mixed news with the guidance we're providing for first quarter. Having said that, we're coming off just a spectacular 2016 and finish strongly, and very confident in the outlook for the business going forward here.|
|There 180,000 reindeer in Norway, and 15 people whose only job is to police them. Yeah, that’s right. Norway has reindeer police.
The colors of the night (Manarola, Liguria, Italy) ~ by AndreaPucci|
|Well in summary not good.
A lot of the speculative interest will vote with their feet and very likely this will get ignored now until there is reason to take notice again and that could be this time next year. Moreover, Arris is an unlikely beneficiary of Trump tax changes if they get through and may even get caught in the cross fire.
On the plus side, when some do the numbers, the acquisition could be a meaningful step up in eps and growth stats, but a flat 2017 on the rest of Arris will nullify that. So much for my expectation this would cruise past $30 to nearer $40 because customers would be buying through a new cycle this year. Yes, new management may well be kitchen sinking expectations, but this may also be a reality check, and many will now see $30 again as an opportunity.
I will sweat this out though because it is so much part of my life and would miss it! I also believe in the financial engineering in the balance sheet and there is a return locked in there one way or the other, as well as being a convenient buy into the $ for the next year or so.
The open will be interesting - it may remind me of a golfing expression - bump and dump then turn.|