Arris Fortifies Digital Video Foothold

Yesterday, Arris Group Inc. (ARRS - Analyst Report) said it acquired patents and video processing technology for digital network from EG Technology Inc. Arris will take over the privately held company’s four encoding products, Encore, Quartet, VIPr Transcoder and HEMi Edge. Although financial terms of the deal were not disclosed, industry sources estimate that Arris paid $6.5 million for this acquisition.

Integration of EG Technology’s video processing assets will further strengthen Arris’ existing portfolio of digital video offering that includes Video-on-Demand, Switched Digital Video and Ad Insertion.

EG Technology is primarily a supplier to Tier2 and Tier3 cable MSOs. However, Arris will now accommodate these state-of-the-art video processing technologies on its existing D5 edge QAM platform to provide superior digital video network solutions. The company has a solid clientele of Tier1 US cable MSOs. Acquisition of these valuable video processing assets will give Arris an edge in this highly competitive industry. Its major rivals include Motorola (MOT), Cisco System Inc. (CSCO - Analyst Report), Harmonic Inc. (HLIT - Snapshot Report) and Tandberg Television.

During the last few years, Arris has been trying hard to enrich its digital video portfolio since these are generally high-margin products. In early 2007, the company failed to buy Tandberg Television as L.M. Ericsson AB (ERIC) offered a much bigger counter bid. Later that year, Arris acquired C-COR Inc. for $730 million to create a formidable pure-play equipment and technology solutions provider in the cable industry. This merger expanded the company’s product portfolio with fiber enabled bandwidth expansion capabilities, OSS management systems, Ad-insertion platforms and Video-on-Demand hardware/software.

Last January, Arris signed an agreement with Verivue Inc. to provide a converged video service network. The company plans to standardize a large part of its next-generation Video-on-Demand and interactive video platform on Verivue’s “solid state” video pump servers. We believe deployment of switched digital video network by cable MSOs will ramp up in 2010. Arris is likely to benefit from continued growth in video and data traffic over cable Internet networks as competition intensifies among cable MSOs, telecom operators and satellite TV service providers.

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