KBRO. 7 th ANNUAL COMMUNICATIONS, MEDIA & TECHNOLOGY CONFERENCE KAUFMAN BROS., L.P.

Transcription

1 KBRO KAUFMAN BROS., L.P. 7 th ANNUAL COMMUNICATIONS, MEDIA & TECHNOLOGY CONFERENCE September 8, The W Hotel, New York Bob Stanzione, Chairman & CEO Jim Bauer, VP - Investor Relations

2 Safe Harbor Forward looking statements: The statements in this presentation that use such words as believe," "expect," "intend," "anticipate," "contemplate," "estimate," or "plan," or similar expressions are forward looking statements. Our business is dependent upon general economic conditions as well as competitive, technological, and regulatory developments and trends specific to our industry and customers. These conditions and events could be substantially different than we believe or expect and these differences may cause our actual results to differ materially from the forward looking statements we have made or the results which could be expected to accompany such statements. Specific factors which could cause such material differences include the following: the timing of the introduction and the performance factors of certain new ARRIS products, design or manufacturing defects in our products which could curtail sales and subject us to substantial costs for removal, replacement and reinstallation of such products; manufacturing or product development problems that we do not anticipate; an inability to absorb or adjust our costs in response to lower sales volumes than we anticipate; loss of key management, sales or technical employees; decisions by our larger customers to cancel contracts or orders as they are entitled to do or not to enter into new contracts or orders with us because of dissatisfaction, technological or competitive changes, changes in control or other reasons. Other risks involve capital spending levels by our customers based in part on demand for broadband services, customer adoption of our technologies and the development and marketing of technology by our competitors. The above listing of factors is representative of the factors which could affect our forward looking statements and is not intended as an all encompassing list of such factors. In providing forward looking statements we are not undertaking any obligation to update publicly or otherwise these statements, whether as result of new information, future events or otherwise. 2

3 ARRIS Overview

4 Who We Are ARRIS is a leading global provider of broadband access solutions for delivery of converged voice, data and video services over HFC networks We help our customers create value primarily through Revenue Generating Unit (RGU) growth Two product categories Broadband 1 st generation cable telephony: Cornerstone Voice IP based network elements for converged data, voice & video: CMTS, Q5 DMTS Supplies DOCSIS CPE (E-MTAs, cable modems) TeleWire Supply (plant hardware) 4

5 What We Have Done Established market leadership in broadband voice and data Undisputed leader in Cable Telephony with over 4M lines in service Strong market and technology position in DOCSIS Qualified CMTS Two DOCSIS 2.0 CMTS platforms Growing share of embedded base Top 5 operators worldwide have standardized on ARRIS E-MTAs Ready for the all digital network market disruption Building on DOCSIS experience Launched IP Video initiative 5

6 ARRIS 5-Point Growth Strategy... Transition to Everything IP Everywhere Lead the market with solutions that address The growing broadband internet access market The explosive VoIP market The emerging IP Video transport market The developing international markets Leverage our current voice and data business Fill out installed base of CBR voice telephony Establish large installed CMTS base for high speed data Strengthen and grow TeleWire Supply business Expand and/or fill gaps in our existing product and services portfolio through internal developments, partnerships and acquisitions Maintain and improve strong capital structure 6

7 Our Markets

8 Canada Eastlink VCom Capella / Rogers ARRIS 2004 Worldwide Sales A Global Customer Base Latin America VTR Chile BCD/Cablevision Argentina Megacable Mexico Liberty Puerto Rico Cable Bahamas Bahamas Plus 10 Others United States Cox Comcast Time Warner Charter Insight Adelphia GCI Knology Susquehanna Grande Bright House Frankfort Black Hills Cebridge NCTC Plus 50 Others Over 66 operators, in 47 cities, in 28 countries, and growing 8 Asia Jupiter Japan Synclayer Japan Commverge / Hanaro Korea Han Kook Korea Chengdu China OSI Plus Japan Plus 12 Others Europe UGC / Europe Multiple Countries Retecal Spain Cabovisao Portugal Essent Netherlands Accesscom Israel Telenet Belgium Laser GmbH Germany Plus 40 Others

9 ARRIS Market Environment Increasing Competition from Telcos and Satellite will drive U.S. Cable Operator Spending for Faster Internet Access Carrier Grade Phone Service On-demand video Similar dynamics apply in a growing International market Aging network will require more maintenance The all digital IP based technology disruption is occurring : data voice video ARRIS is Ready! 9

10 ARRIS Products Current and Future

11 ARRIS Telewire provides Products for existing Markets and for new Emerging Markets Plant Maintenance & Construction Drop Emerging Markets Maintain/grow share Product cost reduction & margin improvement Value-added services Compete aggressively in this growth area Leverage ARRIS Broadband success with CBR and VoIP Leverage ARRIS Broadband business Anticipate MSO need for new RGUs Residential Commercial/SOHO Invest in new products & partners 11

12 ARRIS provides a wide range of Products for Voice, Data, & Video Solutions Cornerstone 2 & 4-Line Voice Port Cornerstone HDT CBR Telephony Cornerstone Max24 World Market Leader VoIP Telephony & Broadband Data Touchstone Telephony Ports & Telephony Modems Touchstone Cable Modems Cadant C4 CMTS Cadant C3 CMTS DOCSIS 1.1 DOCSIS 2.0 PacketCable Toward Convergence IP Everything 12 Data, Voice, Video Q5 DMTS

13 ARRIS provides Products for Voice CBR Telephony Cornerstone 2 & 4-Line Voice Port Cornerstone Max24 Cornerstone HDT 13

14 ARRIS provides products for Voice and Data VoIP Telephony & Broadband Data Touchstone Telephony Ports & Telephony Modems Touchstone Cable Modems Cadant C4 CMTS Cadant C3 CMTS 14

15 ARRIS is now introducing new Video Solutions Digital Video Q5 Digital Multimedia Termination System 15

16 ARRIS Cadant CMTS Product Portfolio meets TODAY S Worldwide needs for VoIP and HSD Chassis-based Rack Mount Large Markets Cadant C4 CMTS >20k homes passed per hub DOCSIS 2.0 Qualified PacketCable Supports 32,000 Cable Modems Unique service differentiators Medium to Small Markets Cadant C3 CMTS 5K - 20k homes passed per hub DOCSIS 2.0 Qualified Supports 3,000 cable modems DOCSIS DOCSIS and and Euro-DOCSIS Euro-DOCSIS Qualified Qualified CMTS CMTS DOCSIS DOCSIS and and Euro-DOCSIS Euro-DOCSIS Qualified Qualified CMTS CMTS 16

17 Worldwide CMTS Market (Rev $M) $800 $700 CAGR ( 04-06) = 16% Growth driven by: Voice over cable $600 $609 High speed internet access $ Million $500 $400 $300 $420 $450 $504 Standards maturation DOCSIS 1.1 DOCSIS 2.0 PacketCable $200 Infonetics - Feb 2004 $100 Yankee - April 2004 Analyst Avg $ ARRIS View 17

18 ARRIS Continues to Expand our Installed Base of CMTS Products Cumulative DOCSIS Downstream and Upstream Channels 90,000 80,000 Downstream Upstream 81,269 70,000 60,000 50,000 40,000 30,000 20,000 10,000 10,734 0 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Note: Historical Com21 Shipments Excluded Benefiting from Industry Consolidation 18

19 ARRIS CPE Portfolio of Products For All Applications Also Provides New Revenue Growth Opportunities. Application Touchstone Telephony Modem TM402P Touchstone Telephony Modem TM402G Carrier Grade Voice & Data Carrier Grade Voice & Data 2 RJ11 1 RJ45 1 USB Capacity 2 RJ11 1 RJ45 1 USB CableLabs PC 1.1/DOCSIS 2.0 PC 1.1/DOCSIS 2.0* Features Battery Backup Data Interface Voice CODEC Specials 8-16 Hrs Lithium Ion Bridged 10/100 & USB 711, 726, 729 Battery Telemetry 4 Hrs Lithium Ion Bridged 10/100 & USB 711, 726, 729 Battery Telemetry Touchstone Telephony Port TP302A & TP304A Touchstone Cable Modem CM450A Voice & Data Outdoor Carrier Grade Voice & Data High Speed Data 2 RJ11 1 RJ45 1 USB 2 or 4 RJ11 1 RJ45 1 RJ45 1 USB PC 1.0/DOCSIS 2.0* PC 1.1/DOCSIS 1.1 DOCSIS 2.0 Local power only Bridged 10/100 & USB 711, 726, 729 Network or LPSU 10 Base-T Local Power Only Bridged 10/100 & USB - N/A *Euro-DOCSIS models also available Touchstone Telephony Modem TM402A , 726, 729 Battery Telemetry

20 Worldwide MTA Market (Rev $M) $400 Growth driven by: $350 CAGR ( 04-06) = 90 % $348 Consumer adoption of voice over cable $300 CPE convergence Competitive defense $250 $236 $ Million $200 $150 $100 $50 $- $23 $ Friedman, Billings, Ramsey (Dec 03) Kagan (Jan 04) Average of Analysts View ARRIS View 20

21 E-MTA Cost Reduction is underway following a well defined Roadmap Cost $ Platinum Gold Platinum 40%+ Estimated Cost Reduction! Sliver Bronze Gold Silver Model 4 Taiwan Production Bronze Model 6 Silicon Tuner, Ocean Shipments China Production Model 5 New DOCSIS silicon New Plastic 212 cell battery New Line Card TIME

22 Coming Soon

23 Convergence of Voice, Data and Video Network economics drive convergence Voice and high speed data are IP based today Video services over IP will dramatically lower costs On-Demand Content Digital video is another form of data Key differentiator from satellite based video delivery Customized content Local or network based storage Optimizing Bandwidth Utilization Changing daily, weekly and seasonal bandwidth usage patterns benefit from a unified network design and dynamic BW allocation Integrating with Legacy Systems Operator s capital investment in digital video and VoD can be supported by next generation systems 23

24 Multiservice Network Today Commercial Residential Voice Services Data Services Video Conferencing Video on Demand Digital Television Analog Television Gaming Web Surfing Telephone Different Protocols Multiple Separate Pipes Inefficient Bandwidth Utilization Difficult to Manage HFC Network 24

25 Multiservice Network Tomorrow Commercial Residential Voice Services Data Services Video Conferencing Video on Demand Digital Television Analog Television Gaming Web Surfing Telephone Everything IP Everywhere Single Unified Pipe Efficient Bandwidth Utilization Easy to Manage HFC Network 25

26 CMTS Becomes DMTS Over Time DMTS - Digital Multimedia Termination System MPEG-2 TS An HFC network edge device specifically designed to efficiently aggregate and deliver downstream dominated multimedia content in a variety of formats to a variety of subscriber devices. DMTS WM9 DVB-C MPEG-4 Real Player ARRIS Cadant DMTS C4+ CMTS DOCSIS Streaming IP PCMM ARRIS Q5 DMTS 26

27 Introducing the ARRIS Q5 DMTS Network Edge device to support both MPEG-2TS / DVB-C content and DOCSIS multimedia content delivery Meets or exceeds all the latest IP EdgeQAM specifications Industry leading packaging density 2RU high, 19 wide rack-mount enclosure Equivalent to the highest density 1RU GbE Edge-QAM Modular design supports flexible deployment configurations: 48 D/S Edge-QAM 32 D/S Edge-QAM & 8x4 CMTS 16 D/S Edge-QAM & 16x8 CMTS 24x12 CMTS N x 24 Phy-less CMTS Available Q404 Q404 Trials Trials 27

28 Worldwide QAM / IP Video Access Market (Rev $M) $700 CAGR ( 04-06) = 83 % Growth driven by: $600 $500 $609 Convergence over IP Headend consolidation Bandwidth utilization $ Million $400 $300 $389 On-demand content Continued Edge QAM deployment $200 $182 $100 $100 $ ARRIS View

29 Barriers to Entering DMTS market are the lowest for ARRIS of any vendor DOCSIS MAC MPEG Multiplexer Upstream PHY Jitter Correction GbE Network Processors Queing Congestion Control QoS IETF RFCs CableLabs L2 & L3 Routing Redundancy Switching Fabric Packet Classification DMTS Path for CMTS to become DMTS CMTS Time Stamp VoD Interops ARRIS leaps the barrier faster with: 1. Market leadership QAM Path for QAM to become DMTS 2. World class support 3. Extensive System Integration, Validation and Scaling experience 29

30 Wireless DOCSIS System Broadband Wireless Access (BWA) Architecture Internet Subscriber Mgmt Down Stream Transceiver/ Antenna Options Cadant C3 CMTS Up Stream Up/Down Converter Power Amp Diplexer Touchstone Cable Modem CM450W Flexibility of ARRIS CMTS and Cable Modem Designs Permitted Rapid Introduction Of These Products!!! 30

31 Financials

32 Key Actions & Focus Top Line Manage ultimate transition from 1 st to 2 nd generation telephony Introduce new products E-MTA Cadant C4+ CMTS Q5 DMTS New Distribution products Increase market share Operating Expense Continue to optimize and tightly manage Continue to invest aggressively in future: CMTS Q5 DMTS C4+ CMTS All IP network Profitable growth Improve earnings per share Target gross margins of 30% or above Strong Capital Structure Strong Working Capital Management Invest in our future R&D M&A/Alliances Margins Balance of Gross Margin and Operating Margin Product Cost Reductions Increase market share of higher margin products Improve operating margins in Supplies product category Capital Structure and Working Capital Opportunistically redeem notes Maintain sufficient liquidity Continue strong working capital management 32

33 Results For Second Quarter 2004 Revenues of $120.5 million, up 18.5% compared to 2Q03 and up 8% compared to 1Q04 Net income (loss) per share of $(0.06) Excluding amortization of intangibles and certain items earnings of $0.05 Gross Margins 33.5% Cash Balance of $100.3 million Cash from operating activities of $6.18 million Inventory turns of 4.3 Accounts Receivable DSOs of 46 days 26 33

34 Guidance For Third Quarter 2004 Revenues in the range of $118 to $130 million Net income (loss) per share from $(0.07) to $(0.02) Excluding amortization of intangibles and certain items earnings of $0.01 to $0.05 per share ARRIS products remain well positioned for resumption of future MSO spending in 2004 and beyond 26a 34

35 Summary ARRIS is a market leader in broadband access solutions HFC Telephony over Cable (CBR and VoIP) Cable Modem Termination Systems & emtas Emerging IP Video Portfolio ARRIS growth strategy is to Maintain and improve strong capital structure Leverage our current voice and data business Transition to Everything IP Everywhere Strengthen and grow TeleWire Supply business Expand and/or fill gaps in our existing product and services portfolio through internal developments, partnerships and acquisitions 35

36 Questions and Answers