Anyone surprised about the job cuts cited at Arris Group this week must have never seen a merger of this kind before. The entire rationale of merging included a reduction in product costs, operating expenses and savings on public company costs and G&A.
Getting rid of two sets of headquarters staff, merging into a single accounting and sales function, eliminating manufacturing overlaps and distribution arrangements, were always going to lead to job cuts and don’t expect these to be the last.
Arris is in an invidious position, and last week when it filed revenues off $13% at $1.1 billion, compared to this time last year with net income falling around its ankles to $30 million. It was lucky that it managed to complete the merger before these first signs of this market pressure came home to roost. Revenue will rise when Pace is included, but only to a run rate of $1.5 billion to $1.6 billion a quarter, making it a $6 billion business. Separately last year the two companies did $8 billion.
So just rationalization cuts are not enough, it has to right size and will likely not stabilize again until it gains back some of that revenue loss, and until its staff is cut yet another 10% to go with the 10% announced this week.
Arris has only just confirmed press reports that began in Multichannel News this week that it will lay off 10% of its global workforce. There is a real problem with a company in this position. It may not get the chance to name who goes – as some of the best staff will vote with their legs and go off to retire or start something in video cloud software, rather than wait to hear their names called out.
Once the US Charter merger goes through there will be immediate relief on its sales, but the climate of operator consolidation will continue through 2016 and it may lose more customers. It can only hope that it loses less that its fiercest rival Technicolor and retains market share.
Just reminding you of what it said as it announced the merger, this deal enhances its international presence, provides entry into the satellite segment, so that it can keep AT&T as a customer as it consumes and orientates around DirecTV The deal will provide a broader product portfolio especially in software. Cuts will invariably come disproportionately from the US, where labor is expensive and where Pace had full operational coverage that is now duplicated by Arris.
In our years covering Arris we have met many old style “cable” guys out there, who have worked the same patch for 20 years. Buying Pace gives them the chance to eliminate some of those without the technical wherewithal to move into the cloud era, and the company will come out stronger, but right after these cuts, there will be more, as it attempts to bring down its pricing in line with CE rivals like Samsung. One likely move would be to merge 2Wire, the home gateway division of Pace, with the DOCSIS based home gateway operations of Arris.