We reiterate our Neutral recommendation on
Arris Enterprises Inc.
). The company reported weak financial results for the first
quarter of 2013, missing the Zacks Consensus Estimate. Management
provided a disappointing financial outlook for the ensuing second
quarter. However, demand for Arris' newly-launched products is
expected to rise from the second half of 2013.
Why Kept at Neutral?
We believe that home gateways, Wi-Fi enabled modems, edged
routers and multi-screen software segments will be the main
growth drivers for Arris going forward. The recent acquisition of
the cable set-top box business of Motorola Mobility, a subsidiary
), will transform the company into an integrated equipment
supplier in thehigh-speed video and Internet delivery market. In
our view, both the top and the bottom lines of Arris are expected
to benefit immensely from this acquisition.
So far, Arris has been a small contender in the high-speed
video and Internet delivery market. Together, the merged entity
will have a commanding global presence with more than 500
customers in 70 countries. Further, this deal will strengthen
Arris' patent portfolio and provide a license to access several
patents of Motorola Mobility. With Motorola Mobility's Cable Home
business in its kitty, Arris is likely to become a formidable
player in the video infrastructure and customer premises
equipments for the cable TV industry.
On Jun 10, 2013, Arris declared that
) has started commercially deploying the company's E6000
Converged Edged Router. Furthermore, Comcast will be launching
Arris' XG1 gateway for its innovative X1 TV service from the
third quarter of 2013. Comcast and
Time Warner Cable Inc.
) are the two prime customers of the company. Historically, these
two customers accounted for over 45% of the total revenue.
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