We reaffirm our long-term Neutral recommendation on
Arris Group Inc.
(
ARRS
). Arris is a major provider of infrastructure solutions for
broadband networks. Its success is mostly depend 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.
Although third-quarter results fell below the Zacks Consensus
Estimates, management provided its fourth-quarter 2011 financial
outlook, which was mostly in line with our expectations. Meanwhile,
the company has diversified its businesses into the digital video
market. Several cable TV operators are gradually shifting toward an
all-IP triple-play converged network architecture offering highly
cost-effective solution to their customers. In this context,
upcoming IP video gateway solutions of Arris may become its future
growth driver.
Customer concentration remains high for the company.
Historically, the two major clients, viz,
Comcast Corp.
(
CMCSA
) and
Time Warner Cable Inc.
(
TWC
), accounted for nearly 40% of total revenue. Loss of any of these
customers would materially impact the company's top-line growth.
Management hinted that in 2011, total sales of Comcast will decline
year over year. In the previous quarter, total revenue from both
these companies went down to just 41.6%.
Arris recently completed the acquisition of BigBand Networks
Inc. We believe the acquisition of BigBand is a major step by Arris
to convert itself as an all IP-converged network architecture
solution provider. BigBand is a specialist in switched digital
video. Arris has now acquired the required economies of scale to
become the market leader in the SDV segment. The company has also
occupied a rich patent portfolio of BigBand, which is spread across
dense edge QAM technologies, targeted advertisement insertion, and
systems designed to help cable operators migrate to an IP video
architecture.
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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