ARRS Arris International Plc - Ordinary Shares

We reaffirm our long-term Neutral recommendation on Arris Group Inc. (ARRS). The company posted mixed financial results for the second quarter of 2011. Arris is a major provider of infrastructure solutions for broadband networks. The company’s 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.

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, newly launched IP video gateway solutions of Arris may become its future growth driver.

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 started 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., huge deployment of DOCSIS 3.0 technology in Europe and Latin America will also help its long-term  growth.

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 came down to just 39.5%.

 
ARRIS GROUP INC (ARRS): Free Stock Analysis Report
 
COMCAST CORP A (CMCSA): Free Stock Analysis Report
 
TIME WARNER CAB (TWC): Free Stock Analysis Report
 
Zacks Investment Research