We upgrade our recommendation for Arris Group Inc. (ARRS) to Outperform ahead of its fourth quarter 2009 financial results. Arris has established a strong presence in the rapidly growing cable modem, cable modem termination systems, and embedded multimedia terminal adapter markets.
 
Recently, management raised its fourth quarter financial guidance. Arris is likely to benefit from continued growth of video and data traffic over cable Internet networks as depicted by increasing market traction for its DOCSIS 3.0 CMTS router. This will improve Arris’ overall financial performance.
 
Arris stands to benefit from the intense competition between cable operators, satellite carriers, and telecom service providers for broadband market share. As residential VoIP and HDTV services continue to grow, cable TV operators keep dealing with increased network traffic due to robust demand for video download and file sharing. This massive requirement for data transport is benefiting Arris’ sales to cable MSO’s seeking to improve their transport offerings.
 
Arris has become the world leader of the Cable Modem Termination System market. The company commands approximately 47% of the global CMTS market, having taken over the leadership position from Cisco System Inc. (CSCO) (39%) and Motorola Inc.(MOT) (10%). During the last couple of years, Arris has been trying very hard to expand its digital video portfolio.
 
Last September, Arris has acquired patents and video processing technology for digital network from EG Technology Inc. In the same month, Arris also purchased privately held Digeo Inc. Digeo is a pure-play interactive television that has diversified its operations into digital video recorder and interactive program guide market.
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