ARRIS Acquires C-COR to Strengthen Its Cable and Video Core

| Sep 24, 2007 | Broadband Infrastructure | Competitive Intelligence Report

| Analyst: Ron Westfall

Current Perspective: Positive/Neutral
Vendor Importance: High
Market Impact: High

Event Summary

On September 23th ARRIS Group Inc. and C-COR Incorporated announced that they entered into a definitive agreement whereby ARRIS will acquire C-COR for a purchase price of approximately $730 million in a mix of cash and ARRIS stock. With over 250 customers around the world, the companies collectively reported revenues of over $1.2 billion over the past 12 months and the merged company will be the largest pure-play provider of equipment and solutions to the cable industry.

Analytical Summary

• Current Perspective: Slightly positive on ARRIS’ acquisition of C-COR for $730 million in stock and cash as the acquisition will strengthen ARRIS’ competitive position in areas such as improved aggregate sales revenue and margin potential (i.e., $1.2 billion for the combined companies over the last 12 months), increased addressable market opportunities within the cable operator space, and gives ARRIS enhanced portfolio assets in areas such as content and network management. However, ARRIS still faces an uphill competition battle in positioning the company as the premier equipment provider of cable equipment solutions and the acquisition limits its options beyond the cable space.

• Vendor Importance: High as ARRIS needed to acquire C-COR to create a cable infrastructure portfolio that directly synthesizes ARRIS’ assets in areas such as CMTS, QAM gateway, and cable VoIP with C-COR’s assets in content/video management and professional services to yield a more formidable portfolio that fulfills a wider degree of cable operator strategic needs and thus more directly counter its major rivals. C-COR needed to merge with ARRIS to bolster its long-term competitive prospects by tapping into ARRIS’ channels and integrating into ARRIS’ portfolio mix.

• Market Impact: High on the overall cable infrastructure space as the ARRIS acquisition of C-COR targets the back-office and video and multi-play integration/migration dimensions of ARRIS’ core cable operator customer base. This will compel ARRIS’ major rivals such as Cisco, Motorola, and BigBand to modify future product development and alliance efforts with C-COR, as well as adopt and reset competitive sales and marketing responses in the areas of cable video and multi-play management and back-office evolution.

Recommended Competitor Actions

• Major cable infrastructure players such as Cisco and Motorola need to portray the proposed ARRIS takeover of C-COR as not threatening their well-entrenched position within the overall cable equipment market. In terms of overall cable equipment market share position, Cisco commands an aggregate market share of 42.6% (including Scientific-Atlanta and Linksys) and Motorola commands an aggregate market share of 31.9% (including Terayon), according to Synergy Research. The C-COR takeover does not alter ARRIS’ market share of 14.3% in this major area.

• Major equipment vendors such as Cisco, Ericsson, Nokia Siemens, and Alcatel-Lucent should continue emphasizing that a combined ARRIS/C-COR still lacks key cable equipment portfolio asserts in areas such as carrier routing, carrier telephony (e.g., softswitches, IMS/FMC) and mobile/wireless platforms. Thus ARRIS still comes up short as positioning itself as the strategic equipment provider of MSOs.

• CMTS rivals, such as Cisco, Motorola, and BigBand, need to challenge the ARRIS takeover of C-COR as potentially diverting resources and focus from ARRIS’s respectable number two standing within the CMTS market segment due to overall integration efforts. ARRIS has successfully defended its second-place standing within the CMTS segment over the last five quarters (e.g., 25.1% share in worldwide revenues during Q1 2007 according to Synergy Research), but still must prove it can smoothly handle the diversion of a major acquisition effort.

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Current Perspective

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Recommended Vendor Actions

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