Cable Tech

Arris Takes 'Giant Leap Forward'

Arris Group Inc. (Nasdaq: ARRS) is positioning itself to have the product portfolio and scale necessary to compete with Cisco Systems Inc. (Nasdaq: CSCO) and Motorola Inc. (NYSE: MOT) and stay ahead of smaller rivals following its $730 million bid for C-COR Corp. (Nasdaq: CCBL). (See Arris Bids $730M for C-COR.)

The acquisition represents "a giant leap forward for us," said Arris Chairman and CEO Bob Stanzione during a call Monday morning with reporters and analysts.

He said the deal will allow Arris to continue a strategy to expand its product line and portfolio through internal developments and via acquisitions, particularly in the area of digital video. Arris had already tried to bolster its video positioning by buying Tandberg Television , but that plan was scuttled when Ericsson AB (Nasdaq: ERIC) stepped in with a higher bid. (See Ericsson Offers $1.4B for Tandberg TV.)

From a product standpoint, there is little overlap between the respective portfolios of Arris and C-COR. The primary product redundancy is in the area of next-gen edge QAM devices that are capable of sharing network resources among different cable applications, including broadcast video, video-on-demand, and Docsis-based Internet access. Edge QAMs are also a key element of bandwidth-saving switched digital video (SDV) architectures. (See Universal Edge QAM Market Heats Up.)

C-COR launched its entry, the CHP eQAM in June. Arris, meanwhile, disclosed in late July that Comcast Corp. (Nasdaq: CMCSA, CMCSK) had selected its D5 Universal Edge QAM (UEQ) for switched video and other applications. It's believed that the MSO has also selected Harmonic Inc. (Nasdaq: HLIT) edge QAMs. C-COR, meanwhile, is participating in Comcast's SDV tech trial in the Denver area. (See C-COR Launches Edge QAM, Comcast Taps Arris for Edge QAM Initiative , and Comcast Puts SDV Vendors to the Test.)

In terms of what doesn't overlap, Arris will expand its cupboard with C-COR's fiber-deep, bandwidth-expanding 1 GHz cable access network gear, OSS management systems, ad-insertion platforms, and video-on-demand gear and software. The State College, Pa.-based company also makes a session and edge resource management system for VOD and SDV deployments. C-COR, founded in 1953 as Community Engineering, got into the VOD business in early 2005 after putting up $89.5 million for nCUBE Corp.

Arris, meanwhile, is the leading supplier of embedded multimedia terminal adapters (E-MTAs), with a 46.5 percent share of that market, well ahead of Motorola and Scientific Atlanta, according to a recent analysis by Heavy Reading. (See Modem Shipments Eclipse Old Record.)

Arris, headquartered in Suwanee, Ga., also has approximately 25 percent of the cable modem termination system (CMTS) market, behind Cisco. Arris entered the CMTS business in early 2002 via its $60 million acquisition of a startup called Cadant.

"We have a great respect for their [Arris's] ability to take new products to market," C-COR Chairman and CEO David Woodle said. "This is (about) building a stronger company with complementary products."

They also have complementary MSO customers. Comcast is Arris's largest customer, while Time Warner Cable Inc. (NYSE: TWC) is C-COR's.

If the deal closes as planned by January 2008, the combined entity will create a "pure play cable solutions provider," Stanzione asserted. The merged company will have about 2,000 employees, including 850 engineers, and revenues of $1.2 billion, when factoring in the last 12 months.

While the combination with C-COR will give Arris more scale and product integration opportunities to battle bigger dogs like Cisco and Motorola, Stanzione did not list those competitors by name. But he did point out that the revenue-making ability of the Arris-C-COR combination will outdo "smaller, niche players" such as Harmonic, BigBand Networks Inc. (Nasdaq: BBND), SeaChange International Inc. (Nasdaq: SEAC), and Concurrent Computer Corp. (Nasdaq: CCUR) which, depending on the company, specialize in product categories such SDV, VOD, and edge QAMs.

In a Q&A session, some analysts questioned the strategic logic of the deal, wondering why Arris talked up the growth potential in the telco and satellite sectors when it was in pursuit of Tandberg, then pushed the pure-play cable angle when discussing Monday's deal to acquire C-COR.

Stanzione responded that the C-COR acquisition is representative of the first step of Arris's strategy to grow its product portfolio, "especially in the video category."

"It had to do with what was available," Stanzione added. "That's not to say that this [deal] was on the rebound or anything. But this is exactly what we were looking to do."

Stanzione said he and Woodle had "toyed with the idea" of a merger for a couple of years.

Arris's acquisition of C-COR is subject to a break-up fee of $22.5 million. Arris received a break-up fee of $18 million after the Tandberg deal fell through.

At this point, there doesn't appear to be a rival bid in the making for C-COR.

"C-COR did a thorough exploration of strategic options... And we thought this [Arris deal] was the best," Woodle said. "Yes, there were other opportunities out there, but, again, the alignment of the strategies, the culture, and the deal economics just made a lot of sense to do this one now."

— Jeff Baumgartner, Site Editor, Cable Digital News

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