ARRS Arris International Plc - Ordinary Shares

Arris Group Inc. (ARRS) recently completed a successful trial for its cable-based IPv6 gears with Comcast Corp. (CMCSA) in Denver. Internet Protocol version 6 (IPv6) is a network layer standard developed in the early 1990s to solve the problem related to the projected exhaustion of IPv4 addresses.

The IPv6 gears of Arris were used for the high-speed DOCSIS 3.0 (Wideband) network of Comcast. The industry leading C4 CMTS cable modems and Touchstone WBM760 Wideband cable modems of Arris support the IPv6 technology. Customers can also implement IPv4, IPv6, or dual IPv4/Ipv6 pairing using Arris modems.

Successful trial of IPv6 gears with Comcast is very important for Arris, since Comcast is the single largest customer of the company.  Customer concentration is significantly high for Arris. Historically, the two major clients, viz, Comcast and Time Warner Cable Inc. (TWC), accounted for nearly 50% of its total revenue.

However, we believe the margin pressure is likely to continue for Arris in the near future due to the impending completion of DOCSIS 3.0 deployment by U.S. cable MSOs. Management hinted that in 2011, total sales to Comcast will decline year-over-year.

Nevertheless, we also believe that in the long-run, Arris stands to benefit from the intense competition between cable operators, satellite carriers, and telecom service providers for broadband market share. As residential VoIP and HDTV services continue to grow, operators are dealing with increased network traffic due to robust demand for video download and file sharing.

This massive requirement for data transport is benefiting Arris’ sales to cable operators, who are seeking to improve their transport offerings. In addition to the U.S., massive deployment of DOCSIS 3.0 technology in Europe and Latin America will also help its long-term  growth.

Arris is gradually diversifying its operations in the international (outside of U.S.) markets. In 2010, international businesses represent 35% of total revenue comapred with just 26% in 2009.

 
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