Television is undergoing a radical phase as Internet-savvy
consumers demand to take control of the content they watch.
To keep customers from cutting the cord, as experts put it, in
the age of streaming video, cable and telco service providers are
scrambling to upgrade technology to better migrate their business
model from a one-way TV service to a two-way communications
That transition involves high-speed Internet and telephony,
plus high-definition TV, 3-D TV and over-the-top Internet
protocol such as feature-length video content over the
Arris Group (
) is one of the main providers of the technology that cable and
telco companies need to migrate to all-digital and IP-based
services. Its gear helps clients compete with streaming video
), Hulu,Amazon (
) and others.
Arris' products include routers and cable modems, set tops,
gateways, encoders and a platform for multiscreen content
"The really exciting thing about the company now is that it is
in a real leadership position in an industry that is experiencing
massive technological shifts," said Brian Coyne, an analyst with
National Alliance Securities. He has followed Arris since
Growing With Focus
Suwanee, Ga.-based Arris was formed in 2000 to address early
opportunities in cable modems.
In 2007 it expanded further into network products with its
acquisition of C-COR, which also gave it video on demand and
other products, including software.
Buying Motorola Home from a subsidiary ofGoogle (
) in April 2013 was especially transformational.
The $2.2 billion cash deal, plus 10.6 million shares of stock
issued to Google, gave Arris new cable TV equipment, including a
video set-top box business. Google still owns a 7% stake in
"It essentially tripled the size of the company," Coyne
Revenue jumped from $1.3 billion in 2012 to $3.6 billion in
2013, which included less than nine months with the Motorola Home
cable-gear business under Arris' belt.
Until the deal, Arris had been focused on a smaller slice of
the market -- products needed to facilitate high-speed data
inside networks and the home, Coyne says.
Motorola's set-top box business under Google was part of a
larger acquisition that the search giant made earlier. But the
business had "lost its footing" by the time Arris bought it,
To its credit, he noted, Arris made "a very impressive
The company now has around a 35% share of the cable-modem
market, 15% of the set-top box market and 40% of the cable modem
termination system market (for providing high-speed data), RBC
Capital Markets analyst Mark Sue said in a recent report.
Sue noted that Arris is gaining share from chief rivalCisco
), which he said is "stepping away" from some deals in
And he pointed out that Arris has more than a year's head
start on Cisco with its E6000 converged edge router, addressing a
market where Cisco's new products aren't expected to ship until
early next year.
Arris says the E6000, which rolled out in large numbers late
last year, is doing exceedingly well. It is used to provide
subscribers high-speed data service such as cable Internet or
The E6000 platforms "are shipping with only 25% of the
potential capacity activated, which leaves room for meaningful
incremental software sales as the remaining capacity is needed,"
Stephens analyst Tim Quillin said in a research note.
Besides Cisco, rivals include Pace, a British company run out
of Fort Lauderdale, Fla.
On the networking side of the competition are San Jose,
Calif.-basedHarmonic (HLIT) and Boston-area Casa Systems.
Motorola had been a rival until Arris acquired its TV
equipment business from Google.
The Motorola acquisition occurred as a new tech cycle was
The cycle is different from past periods, Coyne says. It's
being driven not by service providers, but by consumers wanting
more online, over-the-top video.
The transition "touches on all parts of the company's
business, not just set-top boxes, but also its networking-cloud
division," he said.
"We're in the early days of the transition," he said.
In With The New
Arris' management declined to comment ahead of the release of
second-quarter results in late July.
In a first-quarter conference call, CEO Bob Stanzione said the
firm is benefiting from "this almost explosion of new
over-the-top services coming out, this competition to see who has
the best speeds and who has the best service and who has the
highest quality customer experience."
Take cable giantComcast 's (CMCSA) bid to take over the second
biggest giant in the cable business,Time Warner Cable (TWC). The
merger is all about creating a next-generation video platform,
analysts say. It would also expand Comcast nationwide, including
the top markets of Los Angeles and New York.
The merger -- which could be completed by early next year
pending regulatory approval -- will bring more business to Arris,
"There will be a lot of network integration," he said. "This
is a situation where the market opportunity gets bigger as a
result (of the merger)."
That contrasts with past mergers in the industry, where
markets were split up or consolidated, with duplicate networks
Comcast and Time Warner Cable are Arris' top two customers.
They accounted for 16.6% and 13% of first-quarter sales,
respectively. Arris' next largest customers wereCharter
Communications (CHTR) andAT&T (T).
Comcast, Time Warner Cable, AT&T, Charter and others are
all making investments in equipment to "future proof" their
networks, said Sue in his report.
He noted that telcos are expanding their voice and data
service with video offerings.
Arris is also gaining new business from outside the U.S. as
small to midsize service providers upgrade and expand their
In April, China Network Systems adopted Arris' high-definition
set-top boxes and a middleware platform to enable its transition
to digital video. China Network serves more than 1 million cable
subscribers in Taiwan.
Arris' financial results are gaining momentum in tandem with
the new tech upgrades.
Quarterly revenue in the past three years has grown 58% on
average, while the average quarterly EPS gain has clocked in at
First-quarter revenue jumped 246% year-over-year to $1.225
billion, largely due to the Motorola Home deal. Earnings rose 88%
to 47 cents a share. Analysts expect full-year revenue to grow
51% to nearly $5.5 billion and earnings to climb 52% to $2.52 a
share, according to a Thomson Reuters poll.