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Cable/Video

Arris Chief Wields OpEx Axe

With its US$2.35 billion purchase of Motorola Home now completed, Arris has set out to prove that the merger will work out just fine and dandy. Speaking at the Jefferies Global Technology, Media and Telecom Conference in New York last week, Arris Chairman and CEO Bob Stanzione said the systems vendor is focusing first and foremost on "attacking operating expenses" after swallowing the much larger Motorola Home unit in one big gulp last month. (See Arris Secures Motorola Home.) Arris, which borrowed a little over $2 billion to finance the Motorola purchase, is aiming to cut $100 million to $125 million in expenses this year. Stanzione said Arris has already started realizing such cost "synergies" by eliminating most of the overlap between the Arris and Motorola cable sales and marketing teams. He said that process is now "90 percent complete," leaving "no confusion as to who the account lead is" on the cable customer portfolio. So how has the company's headcount been affected? Stanzione said nothing about staffing cuts during the fireside chat session with James Kisner, vice president of communications infrastructure equity research for Jefferies. Arris officials had not responded to questions about layoffs as this article was published. Stanzione said Arris is also looking to achieve sizable cost synergies on the research and development side. With Arris and Motorola Home now spending a little less than $600 million combined on R&D, he cited "overlapping programs" and said he expects to cut that overlap during the coming year. But he said the effort "will take a little bit longer" because of existing contract obligations to customers. In addition, Stanzione said Arris is seeking "supply chain" synergies. He expects the newly bulked-up company to enjoy greater "leverage" with both contract manufacturers and device makers. Acknowledging Motorola Home's lackluster financial performance in the first quarter, Stanzione called the results "soft" and weaker than expected. The Motorola Home's lines of business generated $740 million in revenue during the first three months of the year, well below the $816 million expected by Raymond James analyst Simon Leopold. While attributing Motorola Home's poor performance to "multiple reasons," Stanzione pinned much of the blame on the distractions that the operation suffered during the past three years, dating back to when the former Motorola Inc. split itself into two companies and then combined the cell phone and cable units into one operation. "There was so much distraction in that company," he said, noting that the distraction levels peaked last year when Google placed Motorola Home up for sale. "There was just no way that [management] team wasn't distracted by that drama." Stanzione argued that all that distraction also caused Motorola Home's major customers to "pull back a bit" from placing orders with the unit. But, he said, after personally visiting such big customers as Comcast Corp., Time Warner Cable Inc., AT&T Inc. and Verizon Communications Inc. recently to reassure them about the deal, "all that's behind them now." New product developments
Under questioning from Kisner, Stanzione declined to provide much guidance yet for the second quarter. (Arris executives plan to do that in a special conference call with analysts late Wednesday.) But, while predicting that the second quarter "will be a confusing quarter" because of numerous "purchase accounting adjustments," he hinted that multiple new products in the pipeline should yield better results for Motorola Home in the second half of the year. Such new products will likely include hybrid QAM/IP home gateways and pure IP gateways and set-top boxes. In previous sessions with analysts, Stanzione spoke about the progress that both Arris and Motorola Home were making with "set-top gateway initiatives." And, during the Jefferies session, he heralded the advent of the "hybrid era that will go on for several years before we get to the all-IP home." While some market observers contend that consumers' growing adoption of video-enabled consumer electronics devices will be the death knell for cable set-tops, Stanzione believes that the cable home equipment market will keep growing "moderately." He argues that the "technology disruption" now occurring is "opening up big opportunities for the replacement" of older set-top boxes and cable modems with newer, more powerful home devices. He also sees opportunities to "regain some share" in the home device market that was lost during the past two to three years, presumably by Motorola Home. "I think that's a growing market," he insisted. Similarly, Stanzione believes that the market for network equipment will grow as such advanced new video devices as 4K HDTV sets are introduced and the quality of video transmitted keeps improving. He noted that "continued investment in network infrastructure is almost a given" these days as consumer demand for bandwidth continues to soar. "Major service providers are talking about increasing capex for the first time in years," he said. "There are some very positive trends and opportunities on the network infrastructure side." — Alan Breznick, Cable/Video Practice Leader, Light Reading
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