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Arris to Gain Strong CPE Foothold

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Arris Group Inc. (ARRS - Free Report) is likely to become a formidable player in the video infrastructure and customer premises equipments (CPE) for the cable TV industry after its acquisition of the cable home business of Motorola Mobility, a subsidiary of Google Inc. . Arris currently has a Zacks Rank #2 (Buy).

A recent report of Infonetics Research Inc. stated that the combined Arris/Motorola constituted 45% of DOCSIS 3.0 CPE market share in 2012. Individually, Arris commands 29% and Motorola Mobility commands 16% market share. This figure is well above the second ranked Cisco System Inc.’s (CSCO - Free Report) 15% market share. Total market size of DOCSIS 3.0 CPE jumped to $1.6 billion in 2012 from $1 billion in 2011 and constituted approximately 66% of the total cable broadband CPE revenues in 2012.

In Dec 2012, Arris decided to acquire the set-top box and other related businesses of Motorola Mobility for around $2.35 billion. The merger is estimated to generate $100-$125 million in annual cost synergies to Arris and is expected to be completed by the second quarter of 2013, subject to the customary regulatory approval.

So far, Arris remains a small contender in the high-speed video and Internet delivery market. Together, the merged entity will have an overwhelming 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.

Another research firm, Synergy Research Group, also stated that the Arris/Motorola tie-up may pose serious competitive pressure on Cisco, the undisputed leader in the video infrastructure market. In 2012, Cisco’s market share in this segment was 21% followed by 12% of the combined Arris/Motorola market share. Video infrastructure is a lucrative market opportunity with total revenue of $34 billion in 2012.

Another growth area for Arris will be DOCSIS 3.0 cable modem enabled video gateways. The Moxi home gateway is in commercial deployment with 10 customers. The company is conducting RDK Gateway trial runs with Comcast Corp. (CMCSA - Free Report) . According to Infonetics, the worldwide video gateway market size may leapfrog from a mere $97 million in 2012 to around $3.6 billion in 2017.

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