Summary:
ARRIS posted strong third-quarter 2014 results wherein both the top- and bottom-line figures surpassed the Zacks Consensus Estimate. Strong demand for home gateways, major contract wins and the acquisition of the cable set-top box business of Motorola Mobility transformed the company into an integrated equipment supplier in the high-speed video and Internet delivery market. The company recently collaborated with renowned cloud gaming service operator Playcast Media to deliver gaming facilities to Portugal-based MEO TV subscribers. However, ARRIS is solely dependent on cable operators for its revenues. Lack of industry diversification may limit its business prospects. We, thus, maintain our Neutral recommendation on ARRIS.
Overview:
ARRIS Group Inc., headquartered in Suwanee, Ga., is a global provider of media entertainment and data communications solutions. On Apr 17, 2013, ARRIS Group completed the acquisition of the Home Business segment of Motorola Mobility, a subsidiary of Google Inc. After the acquisition, the company was renamed as ARRIS Enterprises Inc. ARRIS is a global technology leader in the development of advanced cable telephony, next-generation high-speed data network, demand-driven video solutions, operations software, and broadband access equipment. The communications equipment and technology provided by ARRIS facilitate the transfer of information on broadband networks. The company's customers are primarily cable MSOs. In addition to its broadband offerings, ARRIS provides infrastructure products for building and maintaining hybrid fiber-coaxial (HFC) networks. The company's largest customers are Comcast Corp. and Time Warner Cable Inc.
ARRIS reports in two business segments as follows:
Network and Cloud: This segment manufacturers Hybrid fiber-coaxial equipment, edge routers, metro Wi-Fi, video management, and storage and distribution equipment for cable TV operators. Fiber-based and copper-based broadband transmission equipment for telecom operators. The product portfolio of Network & Cloud segment also includes advanced video head-end management system for both legacy MPEG/DVB systems as well as full IP Video systems. Provides full support for advanced multi-screen video management, protection, monetization and delivery, together with a suite of products for performance management, configuration, and surveillance. The segment accounted for 61.5% of the total revenue in the first half of 2013.
Customer Premises Equipments (CPE): This segment provides Cable and DSL modems, EMTAs, gateways and set-top boxes and a series of subscribers' premises equipment that enable service providers to offer triple-play voice, video and high-speed data to both residential and business customers. The segment accounted for 38.5% of the total revenue in the first half of 2013.