An industry insider’s thoughts on Arris’ pickup of Motorola
The dust is still settling on Arris’ $2.35 billion deal to buy the Motorola Home division assets from Google, but the devil (or is it God?) is still in the details.
According to Needham and Co. analyst Richard Valera, Arris stands to triple its sales and double its EPS while adding $2 billion in debt. All well and good, but how Arris goes about executing its merger strategy with the much larger Motorola Home assets remains a work in progress. (Meanwhile, Pace, the other strong suitor for Motorola’s set-top box and hardware business, issued a statement that said in part that it was “unable to reach an agreement with Google on terms that the board believes would have been in the interests of Pace’s shareholders.”)
One area that jumped out at me upon hearing the news was network DVR. Motorola has an nDVR platform; Arris doesn’t. Now that former Cablevision COO Tom Rutledge is the head guy at Charter, it would seem as though some vendor, or vendors, stands to gain by Charter duplicating Cablevision’s nDVR rollout.
But on to deeper thoughts, which were supplied by one cable industry insider who seemed to have had his finger on the jugular vein of this deal between Moto and Arris:
- Overall, a good deal for Arris. It probably paid a little too much, and the debt load is a concern, but Arris needed this to better compete with its real competitor, Cisco. If Pace had gotten this, it would have made it tougher on Arris.
- Arris expanded its customer list significantly with all of Arris’ product lines. It fills in the STB portfolio for Arris and gives it the transcoding and Wi-Fi resources it needs to complete the GW architecture. This will give Arris better resources in meeting multi-screen requirements. Arris has a better gateway platform, but again, this gives Arris control over the other STB deployments and how to eventually merge them. It gives Arris optical and Wi-Fi product lines; it gives Arris a better video server platform (they had redone the N3 architecture, but I think the Motorola M series of servers was still better); it gives Arris a better guide template in the DreamGallery SW suite.
- This deal probably makes Arris the No. 2 STB provider worldwide (I think Pace is still No. 1 worldwide), and combined with Motorola’s QAM business, it might vault Arris past Harmonic as edge QAM leader, but certainly past Cisco.
- It not only gives Arris a seat at the table, but a speaking part as to how the STB ecosystem will evolve.
- The deal significantly ramps up Arris’ international presence; it had been concentrating on international, but this will jumpstart it.
- Helps with clients like Liberty that love the voice/data platform, but used Motorola for STB. This deal strengthens those product bundles for customer retention.
- Arris is much better at software than Moto will ever be.
- This will give Arris a bigger modem/EMTA and CMTS footprint. This is the biggest areas of overlap, but Motorola’s CMTS had dwindled to almost nothing in North America, although it’s still pretty significant worldwide. I suspect these are two lines they will shut down, as Arris’ products are much better.
- With Google keeping most of the patents and giving licenses, they are effectively indemnifying Arris against the TiVo litigation. I do hear that Arris will get some patents to bolster its portfolio, just not sure which ones yet.
- This does probably give Arris a voice and play in nDVR as you pointed out.
- Arris manages assets much better than Motorola does.
- Then the obvious: Motorola Home was profitable, and this will triple Arris’ size and revenues.