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Arris Upgraded to Outperform

Zacks Equity Research

We upgrade our recommendation on Arris Enterprises Inc. (ARRS) to Outperform. Both the top and the bottom lines comfortably outpaced the Zacks Consensus Estimate. Arris currently has a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Arris completed the acquisition of the cable set-top box business of Motorola Mobility, a division of Google Inc. (GOOG). This acquisition gave Arris a strong foothold in the high-speed video offerings and Internet delivery markets. The merged entity has a global presence with more than 500 customers in 70 countries. Further, this deal will strengthen Arris’ patent portfolio and provide license to access several patents of Motorola Mobility.

With Motorola Mobility’s Cable Home business in its kitty, Arris is likely to become a formidable player in the video infrastructure and customer premises equipment for the cable TV industry currently dominated by Cisco Systems Inc. (CSCO).

The demand for Arris’ newly-launched products is expected to rise from the second half of 2013. We believe that home gateway, Wi-Fi enabled modem, edged router and multi-screen software will be the primary growth drivers.

From Jun 2012, Comcast Corp. (CMCSA), the largest customer of Arris, started commercially deploying the company’s E6000 Converged Edged Router. E6000 router will act as a powerful C4 cable modem termination system of the company while it can be converted into a Converged Cable Access Platform.

Comcast will also launch Arris’ XG1 gateway for its innovative X1 TV service from the third quarter of 2013.  The XG1 gateway was developed after conducting Reference Design Kit (:RDK) Gateway trial runs with Comcast.

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