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On Jan 10, 2014, we upgraded our recommendation on Arris Group Inc. (ARRS - Analyst Report) to Outperform from Neutral on strong demand for its products, high level of current valuation and the acquisition of the cable set-top box business of Motorola Mobility during third-quarter 2013.

Why the Upgrade?

Robust demand for home gateways, Wi-Fi enabled modems, edged routers and multi-screen software coupled with the recent acquisition of the cable set-top box business of Motorola Mobility from Google, Inc. has transformed the company into an integrated equipment supplier in the high-speed video and Internet delivery market. We also believe that the recent consolidation trend in the broader telecommunications industry will benefit Arris as large operators are expected to invest more in high-speed video and Internet delivery.
Currently, Arris Group Inc. carries a Zacks Rank #1 (Strong Buy).

Detailed Analysis

The acquisition of the cable set-top box business of Motorola Mobility will undoubtedly help Arris attain a strong foothold in the high-speed video offerings and Internet delivery markets. The merged entity has a commendable global presence with more than 500 customers in 70 countries. Further, this deal will strengthen Arris’ patent portfolio and provide a 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. Moreover, to boost sales, the company has deployed its new International Channel Program, where its sales staff will not only boost product sales but will also offer customer support, thereby retaining its customer base.

Total order backlog of Arris, at the end of the third quarter of fiscal 2013, was $$523.7 million compared with $185.8 million at the end of the year-ago quarter. The company will also expand its global presence by supplying next-generation IPTV set-top boxes to Swedish carrier, Telenor.

Other Stocks

Other stocks that are worth mentioning within the same sector are SBA Communications Corp. (SBAC - Snapshot Report) and Nokia Corp. (NOK - Analyst Report). Both currently have a Zacks Rank #2 (Buy).

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