Shares in Arris Group Inc. (Nasdaq: ARRS) are down this week, but it's not just because of the $730 million deal to acquire C-COR Corp. (Nasdaq: CCBL). (See Arris Bids $730M for C-COR.)

The decline appears to be more about news that Arris will miss its earnings estimates for the third quarter.

During Monday's conference call to discuss C-COR, Arris execs mentioned that non-GAAP earnings per share could come in a penny or two below their forecast of 21 cents to 24 cents. The company attributed that in part to some late orders of cable modem termination systems (CMTSs) and a sales mix weighted in favor of lower-margin embedded multimedia terminal adapters (E-MTAs).

"Management also sounded incrementally cautious on operator spending for 4Q, though it indicated that RGU [revenue generating unit] growth trends remain strong, especially around VOIP," Thomas Weisel Partners analyst Jason Ader wrote in a research note.

Arris also said third-quarter revenue should fall in the previously predicted range of $253 million to $263 million.

On Monday, Arris stock fell $2.28 (16%) to $11.98, while C-COR shares climbed $2.14 (21.7%) to $12.02.

Arris's bleeding slowed considerably Tuesday, with shares down 44 cents (3.7%) at $11.54. C-COR stock also came back to earth Tuesday -- down 74 cents (6.2%) to $11.28 per share.

Earnings issues aside, analyst reaction to the C-COR deal has been mixed, with some minor expectation that a rival bid for the State College, Pa.-based company could emerge.

"While [C-COR] would not have been our first choice due to customer overlap and modest growth prospects, it makes strategic sense for [Arris] to gain more scale and product diversity and enhance its gross margin profile," noted Ader, who lowered his price target on Arris stock to $18 from $20.

ThinkEquity LLC analyst Anton Wahlman likewise reduced his 12-month target to $15 from $20.

Wahlman agreed that the proposed C-COR deal "makes a lot of sense," as it will strengthen Arris against the likes of Cisco Systems Inc. (Nasdaq: CSCO) and Motorola Inc. (NYSE: MOT). "But [we] believe the price paid is at least close to a full price, causing some valuation concern," he wrote.

The deal comes with a break-up fee of $22.5 million, although Wahlman believes C-COR can cancel the deal for free if Arris's stock price drops below $11.41.

If it reaches that point, Wahlman said he "would not be surprised to see a competitive bidder such as Ericsson AB (Nasdaq: ERIC) emerge and propose better terms for C-COR."

If that were to happen, expect Arris to remove Ericsson from its Christmas card list posthaste, as it was Ericsson that swooped in with a bid to beat Arris's offer for Tandberg Television . (See Tandberg Board Backs Ericsson Bid .)

C-COR Chairman and CEO David Woodle noted he vetted a number of strategic options for the company. "And we thought this [Arris deal] was the best," he said. (See Arris Takes 'Giant Leap Forward'.)

Morgan Keegan & Company Inc. analyst Simon Leopold maintained his "Outperform" rating on Arris. "Management may have sounded a bit more cautious regarding near-term trends, yet remains bullish on the longer term outlook," he said.

While unaware of any potential counter-bids, "this remains a possibility," he added.

— Jeff Baumgartner, Site Editor, Cable Digital News