The stock price of Arris Group Inc. (ARRS) was down $1.62 (5.45%) in yesterday’s trading. We believe the primary reason behind the dip in stock price was the recent Wall Street Journal report, which stated that the IT giant Apple Inc. (AAPL) is negotiating with Comcast Corp. (CMCSA) to offer a cloud-based TV streaming service using Apple’s own set-top box.
Earlier, Apple discussed a similar deal with Time Warner Cable Inc. (TWC), which failed to materialize. Notably, Comcast has decided to acquire Time Warner Cable. The proposed merger is awaiting regulatory approval. On successful culmination of the Comcast-Time Warner Cable deal, Apple will have the opportunity to offer TV streaming services to more than 30 million customers.
At present, Arris is a major set-top box supplier of Comcast. The company provides Comcast’s X1 set top boxes, which support the cable TV operator’s industry leading cloud-based and Internet-delivered services. Also, Arris plays a very vital role in Comcast’s next-generation IP-Home strategy. After the acquisition of the cable set-top box business of Google’s subsidiary Motorola Mobility, Arris has attained a strong foothold in the high-speed video and Internet delivery markets.
Comcast and Time Warner Cable are the two major customers of Arris. In the fourth quarter of 2103, the two companies together constituted over 25.5% of the total revenue of Arris. Therefore, loss of any of these clients will considerably affect the top line of the cable TV infrastructure vendor. Arris currently has a Zacks Rank #3 (Hold).
On the other hand, several analysts have opined that Arris has a strong presence in the home gateway segment. Its flexible gateway interface allows cable TV operators to deliver content to any third-party Internet-enabled devices including iPhones and iPads of Apple. Therefore, any agreement with Apple to deliver its TV streaming service will only expand the market size of Arris.
Comcast launched Arris’ XG1 gateway for its X1 TV service in the third quarter of 2013. The XG1 gateway was developed after conducting RDK (Reference Design Kit) Gateway trial runs with Comcast.
The next-generation web-capable platform of Comcast called “X1” offers a hybrid IP/QAM video gateway with an advanced user interface and the ability to port third-party apps that tie into a cloud-based infrastructure. The XG1 gateway offers several utilities to X1 customers, including intuitive search, voice control, multi-screen facility and improved DVR experience.