US cable technology firm Arris is in discussions to acquire a slice of the networking business from Broadcom’s Brocade Communications, and is willing to pay a sum exceeding $1 billion, according to Reuters. Could this be Arris admitting that the future of the set top is bleak, and wireless is the way forward? We think so, and so does the Arris CFO.
Arris has been wanting to get into wireless for a while now – a business venture which would almost complete its portfolio and leave it well placed to battle in this field with fierce rival Cisco, who exited the set top business last year with a $600 million sale to Technicolor. But Cisco kept the profitable parts of that business, namely it CCAP business, where it goes head to head with Arris.
Arris’ customers are increasingly investing in wireless, so it was only a matter of time before it had to adapt. Comcast and Charter wireless are hunting MVNO deals, and the proliferation of WiFi hotspots is gathering pace and that has led to supply deals with companies like Nokia.
Which is why the US equipment manufacturer wants to buy the networking edge business of Brocade, leaving its other assets, including data center and switching software, untouched, suggested Reuters.
Questions have been raised about the future of Ruckus, which Brocade only acquired late last year, and Faultline Online Reporter suggested at the time that it offered an attractive prospect for Arris, which has to deal with WiFi every time it installs a home gateway. Ruckus is the “de facto” market leader in “carrier WiFi.”
Broadcom snapped up Brocade last year for $5.9 billion, and the reason Broadcom wants to sell off the networking edge section of the Brocade business is so that it won’t have to butt horns with some of its top customers in this field – namely Cisco. It also has overlaps with a chunk of that business.
Arris has the cash to spend too, reporting Q3 net income up 75% $146.7 million. Its network and cloud business now accounts for 31% of revenues at $1.6 billion, and its CPE business pulled in almost $3.5 billion.
Just last week Arris CFO Dave Potts essentially prepared us for news of a wireless deal, speaking at the Needham Growth Conference: “As we continue to grow, we believe it’s possible we could get into adjacent markets, which could mean, as an example, wireless. What happens to wireless over time – should we be more heavily into that? We’re always focused on what those next opportunities could really be.”
Potts added, “we continue to see some of the supply chain issues we’re trying to get through, but I’d like to think the Pace deal is behind us. We’re in the midst of an upgrade cycle that is really quite big as our clients re-architect their networks. DOCSIS 3.1 is where they want to go. 3.1 and having that service inside the home.”
An anonymous executive from a partner of Brocade expressed their disapproval of the deal: “It would not be good for partners if Brocade split up its networking portfolio and divided them out, definitely not. It would make life harder for us. Harder to maybe even sell Brocade. It would make business, even if only temporary, difficult for us to try to piece together what’s left. I hope it doesn’t come down to that. Hopefully, Brocade will continue to think of the channel when it makes the decision. Nothing is definite yet.”
At the time of the Brocade acquisition, the most likely buyers for Ruckus were Cisco and HPE (or Hewlett Packard Enterprise) which would have rolled Ruckus into its Aruba division. Smaller companies like Extreme Networks, Ubiquiti, and Arista were also potential candidates. Later on, in November we considered whether Arris would buy Ruckus, as a means of expanding its TV operator CPE product line – by jumping on the convergence bandwagon.
Smart-home-as-a-service will be another area that the likes of Arris and its operator partners will be moving to address. As it stands, the upfront cost of the comprehensive smart home seen in the marketing materials is still too much for a consumer to buy off the shelf – costing somewhere between mid-four-figures to low five-figures, and a lot of installation time. For these operators, selling starter packages of bundled devices could be a lucrative business, as well as helping reduce churn.