We reaffirm our long-term Neutral recommendation on
Arris Group Inc.
(
ARRS
). The company is a major provider of infrastructure solutions for
broadband networks. Its success is mostly dependent on the cable
MSOs decision to install new networks or upgrade the existing
networks. If the cable operators fail to compete effectively with
other pay-TV service providers, then it will significantly affect
Arris' future growth.
Acquisition of patents and video processing technology for
digital network from EG Technology helped Arris to diversify its
offering into video encoder/transcoder and IP home gateway
markets.
Arris has introduced an innovative IP video gateway called the
Moxi gateway that replaces the existing cable set-top box and DVRs.
Arris is conducting trial runs for Moxi gateway products with six
customers, of which two customers are expected to launch this
product commercially in the first quarter of 2012. Management is
expecting at least $100 million of revenue from Moxi in 2012.
Arris reported mixed financial results for the fourth quarter of
2011 and provided a soft guidance for the ensuing first quarter of
2012. However, we believe Arris may find momentum from the second
half of 2012. The companyhas diversified its businesses into the
digital video market.
Cable TV operators are gradually shifting toward an all-IP
triple-play converged network offering highly cost-effective
solution to their customers. In this context, upcoming IP video
gateway solutions of Arris may become its future growth driver.
Nevertheless, customer concentration remains high for the
company. Historically, the two major clients, viz,
Comcast Corp.
(
CMCSA
) and
Time Warner Cable Inc.
(
TWC
), accounted for over 41% of total revenue. Loss of any of these
customers would materially impact the company's top-line growth. In
the previous quarter, total revenue from both these companies came
down to just 41.3%.
ARRIS GROUP INC (
ARRS
): Free Stock Analysis Report
COMCAST CORP A (
CMCSA
): Free Stock Analysis Report
TIME WARNER CAB (
TWC
): Free Stock Analysis Report
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