Pace Plc Share Discussion Threads

[mbhesms] 26/2/2017 13:40

Title: What is an STB?

Link:

Summary: The key features of an STB (receive-, decode-, render-video, UX, DVR/VOD) can now be done by a plethora of consumer devices (TV stick, smartphone, computer, games-machine).

Commentary: There is a more interesting discussion worth reading in the comments section below the article. I think the article lacks a discussion on the importance of interfaces and networks: e.g. all the consumer devices above depend on an IP network, either WiFi, Ethernet or 4G so you still need something if your content is being delivered by IP or MPEG over cable, satellite, DVB-T, or other networks. Another differentiation for an STB has been the effect of smuggling technology into the home to enhance or enable system performance, e.g. more CPU -> better UX, content security features -> HD content available from Disney, etc.

[freddie01] 26/2/2017 10:15

Earth’s South Pole.



Early flight over Mordor



The Bled Castle ~ by Beno Saradzic



“Always Whiter On The Other Side Of The Fence”
Wisconsin Horizons By Phil Koch.



Mt. Kirkjufell at dawn



last natural light refraction through ice

by Denny Bitte

[1gw] 25/2/2017 18:08

Yes, I think you're right. Looking at the transcript again it does look like something yet to hit.

So if they're guiding to 100-200bps on the last 3 quarters (rather than something equivalent to 100-200bps on the full year), then I agree the analyst estimates seem to be building in flat revenues on 2016 2Q-4Q and virtually all of the 150bps mid-point margin compression. And not building in anything for the possible growth referred to.

[andyble] 25/2/2017 17:11

Clutching at straws here perhaps "but we may have some as we continue into the year" might suggest they see it coming and yet to kick in.

[1gw] 25/2/2017 16:20

Andbyle - I got to a similar place on the 2017 estimates (although perhaps with about 100bps of reduction built in rather than 150bps) which is why I am comfortable having bought more, although obviously the share price could do anything in the near term.

What's curious though is that if I apply the same analysis just to 1Q17, using a 150bps (i.e. midpoint) reduction in GM and trying to calculate the reduction in eps vs the 1Q16 guidance Arris gave last year I get an expectation of a 21c reduction in adjusted earnings for the quarter. Whereas in fact they are guiding to almost flat compared to the guidance a year ago (i.e. 36c to 40c adjusted earnings in 1Q17 vs their guidance last year of 37c to 42c in 1Q16).

To be clear:
$1560-1610 revenue guidance for 1Q16 (given with 2015 full year results)
$1435-1485 guidance for 1Q17
$125m reduction in guided revenue
$31m reduction in GM due to revenue shortfall (25% GM x $125m)
$22m reduction in GM due to 150bp reduction in GM (0.015x$1460m)
$53m total reduction in GM
$40m reduction in adjusted earnings (assume 25% non-GAAP tax rate)
$21c reduction in non-GAAP eps (192m shares)

So if that is right, are they saying the gross margin reduction only kicks in from 2Q? Or perhaps are there other things happening in 1Q to hide the GM pressure? I guess 1Q16 was atypical because of the timing of the acquisition so there may have been additional costs in 1Q16 that fed into non-GAAP earnings but which are not going to be in 1Q17 non-GAAP earnings (staff and product lines now redundant for example).

[fefebofespa] 25/2/2017 14:48

Let's invest in Brazil ... PBR Petrobras KKK

[andyble] 25/2/2017 11:42

I have just read the transcript again and am concluding that the feelings about margin pressures have been rather overblown. The eps forecasts seem to assume 150bps off for this, whilst after the first throwaway comment about that I felt they tried to repeatedly step that back to cautionary rather than likely. The share price has almost one for one mapped this margin pressure which feels overharsh. As to impressions about the acquisition, I read more into Arris' excitement and detailed perspective than some of the comments from elsewhere, so I am buying into the rationale and prospects, it feels good and meaningful earnings plus. In conclusion this feels like a cyclogenesis in a teacup which will blow away and so this year should be about beats.

[freddie01] 25/2/2017 10:22

Yunnan, China by Scott Man





Southern Right Whales | Peter Chadwick



Reshka passage by Viktor Lyagushkin





Venice Frozen



Sunset by Tomas Kotouc

[freddie01] 25/2/2017 10:21

Eltz, Germany (by mbphotograph)



Cotswolds (by mbphotograph)



Hogwarts, England (by mbphotograph)



7 Minutes at St Mary’s ~ Mark Metternich







by alex.mazurov



Nunobiki Falls

[andyble] 24/2/2017 22:11

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.

[1gw] 24/2/2017 20:05

Analyst updates.

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.

[freddie01] 24/2/2017 10:27

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

[freddie01] 24/2/2017 10:25

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.






Reflections



The American Falls with Full moon at dusk lit - Niagara Falls, Ontario, Canada

[sikhthetech] 23/2/2017 21:56

Why ARRIS International plc Fell 15% Today

[andyble] 23/2/2017 21:43

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.

[1gw] 23/2/2017 17:57

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.

[jzingales] 23/2/2017 16:57

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.....

[sikhthetech] 23/2/2017 16:49

thanks Bashor..

[bashor] 23/2/2017 16:44

Rethinkresearch have an article on the latest news

[1gw] 23/2/2017 15:53

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).

[alexmcdonald] 23/2/2017 15:45

Maybe a buying opportunity?? We are back to where we were in November 2016.