Ahead Of The Bell: Arris Downgraded By Jefferies

NEW YORK (AP) — Arris Group Inc. could face pressure on sales and profit margins as the communications equipment maker losses sales from a key customer, a Jefferies & Co. analyst said Tuesday, downgrading the stock.

Shares fell 66 cents, or 5.2 percent, to $12.01 in premarket trading.

Jefferies analyst George Notter cut the Suwanee, Ga.-based company to "Underperform" form "Hold" in a note to clients and knocked his price target down to $9.50 from $12.

Notter said he expects profits and sales to suffer as Comcast Corp., the country's largest cable operator, completes its transition next year to Docsis 3.0 technology, which provides ultra-high-speed Internet service. He estimates Comcast software upgrades contribute 20 percent to 30 percent of quarterly revenue for Arris.

"We believe current Street expectations don't reflect this," Notter said. He added that "looking at other operators, it's hard to see how Arris can generate the same amount of Docsis 3.0 software upgrade business once Comcast tapers off."

Accounting for the recent acquisition of Digeo Inc., Notter raised his 2010 sales forecast to $1.14 billion from $1.12 billion. But he cut his earnings estimate to 50 cents per share from 57 cents. On average, analysts expect 96 cents per share on sales of $1.16 billion, according to a Thomson Reuters survey.