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We reaffirm our long-term Neutral recommendation on Arris Group Inc. (ARRS - Analyst Report). The company’s first-quarter 2011 financial results failed to meet the Zacks Consensus Estimates. Arris is a leading provider of infrastructure solutions for broadband networks. The company’s success is mostly dependent on the cable MSOs decision to install new networks or upgrade the existing networks. If the cable operators fail to compete effectively with other pay-TV service providers, then it will significantly affect Arris’ future growth. Management provided a weak financial outlook for the rest of 2011.

Meanwhile, Arris diversified its offerings into the digital video market. Several cable TV operators are increasingly shifting toward an all-IP triple-play converged architecture offering cost-effective solution to their customers. In this context, the IP video gateway solutions of Arris may become its future growth driver. Currently, this IP video gateway is in deployment with Shaw Communications Inc. (SJR - Analyst Report) and BendBroadband. Moreover, the company is giving trial run with several other cable operators some of which are expected to start home gateway deployment in 2011.

Recently, Arris has unveiled an innovative and upgraded cable modem termination system (CMTS). The new cable access module (CAM) will be integrated with Arris’ flagship C4 CMTS and will upgrade the C4 CMTS with 24 downstream ports immediately doubling the speed of the existing 12 downstream port CMTS. The new upstream card will complement the company’s recently launched XD CAM that supports 32 downstream ports.

The new CAM will support S-CDMA technology enabling CMTS to support upstream HFC capability. The existence of S-CDMA technology will enable Arris’ new cards to support upstream services in as low as 5 MHz frequency and as high as 85 MHz. Thus, cable operators can use more spectrums for future services in a cost effective manner. One of the primary features of this product is that it can support DOCSIS 3.0 upstream channel bonding with IPv6 capabilities.

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