Arris CEO Hints at Wireless M&A – Could Ruckus Be a Target?
Arris is a pretty big deal in the cable industry, but outside of that insular society, you'd be hard-pressed to find anyone very familiar with the brand. The company is nowhere near the size of the Silicon Valley behemoths, and even in the telecommunications industry, Arris's yearly revenue of not quite $7 billion pales in comparison to on-again, off-again rival Cisco with its annual revenue nearing $50 billion.
That said, CEO Bruce McClelland makes a good case for Arris Group Inc. (Nasdaq: ARRS) when he describes just what it is the vendor does. "If you watch TV or you surf the Internet at home, you're probably using one of our products one way or the other," McClelland said at the Needham & Company Next-Gen Storage/Networking Conference.
Moreover, the CEO sets the bar much higher for his company in the future, repeating multiple times at the Needham conference that he wants Arris to "become one of the major names in tech going forward."
So what would it take for Arris to earn the title of technology heavyweight? In addition to growing organically, the company would likely have to consider new acquisitions, something McClelland is not averse to. In addition to growing further in international markets, McClelland highlights a few sectors with potential for growth that play on the company's broadband strengths, noting at the Needham event that "whether it's long-haul transmission and data center interconnect, or switching and routing, those are all areas that we're not in today that are big spaces that have some potential for us to grow into."
He also suggested that Arris could benefit by picking up a wireless networking asset. Today, Arris has WiFi products and expertise, but it has nothing in the area of cellular networking.
"I think [wireless is] a natural adjacency and there's certainly technologies we have that allow us to grow into that if that becomes a big segment," said McClelland.
He added a few moments later, "It feels like we have a lot of the building blocks already to evolve in that direction. When you get into the managed wireless cellular space though, there's a lot of very specialized technology there that we don't have today so that would be something we'd probably have to go get."
Perhaps McClelland didn't know at the time he was speaking to the Needham crowd that Broadcom Corp. (Nasdaq: BRCM) had just announced its intent to acquire Brocade Communications Systems Inc. (Nasdaq: BRCD), and, as part of that deal, divest itself of the Ruckus Wireless business Brocade bought for $1.2 billion in April. (See Broadcom Buys Brocade for $5.9B, Will Ditch Ruckus & IP Biz.)
On the one hand, Ruckus is known for its WiFi technology, something Arris doesn't need. On the other hand, Brocade CEO Lloyd Carney emphasized another strength when he closed the Ruckus deal in the spring.
"The interesting component that Ruckus had -- that the other wireless providers didn't have -- was their focus on the cellular networks," said Carney at the time. "They've figured out that the line is blurring between LTE, 5G and WiFi, and they have a product portfolio and strategy that firmly addresses that." (See Brocade's $1.2B Ruckus Buy to Raise 5G Game.)
Arris's McClelland too sees the lines blurring; not just between wireless technologies, but between wired and wireless networking.
"I think there's going to be quite a blurring between wireless and wireline going forward. Five years from now, everybody will be a wireless operator of some form or another, and I think there's a lot of white space for companies like ours to bring new innovative products to make that a reality, to really make that happen. So I think that's an area we spend quite a bit of time on trying to think through how do we become a stronger wireless technology partner."
In short, it makes sense that Arris might want a company like Ruckus that's developing technologies for network convergence. This is particularly true as Arris' traditional cable customers both push fiber deeper into their networks and experiment with new wireless offerings.
As it happens, Arris also has an existing relationship with Ruckus. Ruckus signed a reseller agreement with Arris in 2011, and the two companies collaborated with Aptilo Networks AB and Benu Networks LLC in 2015 to launch a carrier-class WiFi solution targeted at small and medium-sized businesses, multi-dwelling units and campus environments. (See Arris to Resell Ruckus Wi-Fi Gear and Arris Launches Hosted WiFi for Indie Operators.)
Notably, Arris announced Nascar as a customer for the joint WiFi solution in February of this year.
Arris has certainly not made any statements about Ruckus directly since the Broadcom and Brocade news surfaced, but it may very well be interested now that the networking company appears to be back on the market. Buying Ruckus would also be a smaller deal than either Arris's purchase of Motorola Home or Pace, both of which cost the acquiring company more than $2 billion in 2013 and early 2016 respectively.
Timing is a critical factor, and whether the time is right for Arris to pick up a wireless networking company now remains to be seen. The question is: Will the sudden availability of Ruckus move up any acquisition timetable for Arris? Or will Ruckus find another suitor while Arris keeps its options open?
— Mari Silbey, Senior Editor, Cable/Video, Light Reading