Shares of Arris, the Suwanee, Ga. video-electronics maker that employs 800 at the former General Instruments/Motorola Home plant in Horsham, Pa., have risen to a 13-year high of nearly $29 a share in recent days since two of its largest customers, Comcast Corp. and Time Warner Cable, announced plans to merge.
Past cable company mergers have led to "order delays and integration disruptions," followed by a rush of higher spending on set-top boxes and other equipment after deals are settled, noted Denver-based cable analyst Brian Coyne, in a note to clients of Dallas-based National Alliance Capital Management last week. But Coyne added that, in this case, much of the order slowdown may have already taken place, as Comcast and rival Charter negotiated with Time Warner over possible combinations over the past few months.
Once the deal wins government and shareholder approval, Comcast and Time Warner will both need 'to aggressively develop new video and data platforms," and Arris is "arguably the most important technology partner for both operators," Coyne added.
Along with set-top cable boxes, Arris makes equipment that enables cable operators including Comcast and Time Warner to put their video transmission through an Internet Protocol (IP)-based network, as Raymond James & Co. analyst Simon Leopold told analysts in a report last week. Comcast expects to shave as much as $400 million off the combined companies' capital equipment spending each year after the merger, but as Leopold noted that's a small fraction of their combined $10 billion capex budget.
Comcast has been a leading proponent of the switch to IP, and if it buys Time Warner that could result in a large increase in Arris orders, Multichannel News's Jeff Baumgartner noted in this article. But Arris boss Robert Stanzione in this follow-up piece told Baumgartner his company is "holding our breath" and manufacturers are "doing a wait and see."
Arris relies on Comcast and Time Warner for up to half its total sales, but has been trying to diversify its customer base by selling more to AT&T, Verizon and foreign customers. Overseas sales now makes up about one-third of the company's $4.7 billion in yearly sales,, Stanzione told investors at a Raymond James conference last year. Arris is scheduled to report earnings Wednesday, spokesman Bob Puccini told me.
“We just made the announcement last week and it’s too soon” to comment on Arris' prospects, said Comcast spokeswoman D’Arcy Rudnay. Time Warner officials had no comment.
Arris employs about 6,500 after digesting Motorola Home, which had about 5,000 employees vs. around 2,500 at pre-merger Arris.