Our discussions with industry contacts suggest that at least one major N. American MSO is working to estimate how much additional capacity may be needed for a new Apple device on their broadband data network. We believe this potentially suggests an imminent launch of the Apple TV, a positive development for ARRIS, who is directly exposed to data traffic growth from incremental IP video streams on cable networks.
In Chart 10 below we examine the potential impact of an Apple TV launch at Arris’ biggest customer, Comcast (CMCSA, $35.40, Hold) (Here we’re talking about an unannounced product, not the Apple TV product that is currently available). It’s important to understand that network capacity is largely engineered to peak traffic levels – thus we’ve based our analysis on what peak data consumption might be based on 50% of Apple TV users watching an HD video stream all at once (this might realistically happen on a Friday or Saturday night). We then translate the incremental data usage to incremental port requirements (each port maps to roughly 40mbps of capacity). Our conversations with industry contacts have suggested in the past that Arris has over 50% of Comcast’s CMTS footprint – thus we assume 55% of the port shipments go to ARRIS. Finally, we assume that these port shipments come at 45% contribution margin; given the relatively high gross margins and software content on the CMTS business, we believe this is realistic. Depending on the unit assumptions, we arrive at an EPS impact of $0.07 – $0.40 for Arris from an Apple TV launch at Comcast.
We note that Jefferies analyst Peter Misek is forecasting Apple TV unit sales of 4.9 million units in CY13 and 11.6 million units in CY14. These estimates assume an actual Television product (not a “puck” like the current Apple TV).
An Apple television product has been rumored for some time; however, stalled talks with media and cable companies are said to have delayed the device.