We reaffirm our long-term Neutral recommendation on Arris Group Inc. ( ARRS - Analyst Report ) . The company is a major provider of infrastructure solutions for broadband networks. Its 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.

Acquisition of patents and video processing technology for digital network from EG Technology helped Arris to diversify its offering into video encoder/transcoder and IP home gateway markets.

Arris has introduced an innovative IP video gateway called the Moxi gateway that replaces the existing cable set-top box and DVRs. Arris is conducting trial runs for Moxi gateway products with six customers, of which two customers are expected to launch this product commercially in the first quarter of 2012. Management is expecting at least $100 million of revenue from Moxi in 2012.

Arris reported mixed financial results for the fourth quarter of 2011 and provided a soft guidance for the ensuing first quarter of 2012. However, we believe Arris may find momentum from the second half of 2012. The companyhas diversified its businesses into the digital video market.

Cable TV operators are gradually shifting toward an all-IP triple-play converged network offering highly cost-effective solution to their customers. In this context, upcoming IP video gateway solutions of Arris may become its future growth driver.

Nevertheless, customer concentration remains high for the company. Historically, the two major clients, viz, Comcast Corp. ( CMCSA - Analyst Report ) and Time Warner Cable Inc. ( TWC - Analyst Report ) , accounted for over 41% of total revenue. Loss of any of these customers would materially impact the company’s top-line growth. In the previous quarter, total revenue from both these companies came down to just 41.3%.