Arris CEO: M&A ‘Distractions’ Took Toll on Motorola Home

The distractions and uncertainties that surrounded the sales process of Motorola Home division will show up in lower than expected sales in the second quarter of 2013, Arris chairman and CEO Bob Stanzione said Wednesday night during a guidance call coming about a month after Arris closed its acquisition of the set-top and broadband gear supplier.

He said second quarter sales will be in the range of $1.028 billion to $1.078 billion, centering on about $1.053 billion, roughly $53 million below the $1.105 billion the combined companies would have had in the first quarter of the year.

“Frankly, we expected some decline, but these results are weaker than our original estimate. We will have some work to do before meeting our target run rates,” Stanzione said, predicting that rosier times are ahead as Arris completes the integration. He said the company is on track to achieve the expected $100 million to $125 million of cost synergies within a year of completing the deal, but did not say how that process will affect the company’s base of 7,000 employees.

Arris closed the $2.35 billion acquisition of Motorola Mobility’s Home unit from Google on April 17. Tied into the deal, Google and Comcast now each hold 7.7% stakes in Arris, but do not have board seats. At the time, Stanzione told Multichannel News that the streamlining will come from a mix of sources, including cost of goods, G&A, marketing and sales, and R&D. Arris expects to phase out the Motorola brand within a year. 

Stanzione said Wednesday that the deal process, and the uncertainties that came with it, took a toll on the Motorola Home division in more ways than one.

“Some momentum was lost due to the internal distractions and customer reluctance to expand their business with Motorola Home, given the uncertainty around its ultimate disposition,” he said. “It is clear that the management team put a lot of time and effort into the auction process. And the uncertainty throughout the process took its toll on the employees.”

Stanzione acknowledged that the uncertainty gave pause to some of Motorola’s larger MSO buyers. “An executive of one of our largest customers told me very candidly that his company was holding back on new business until they were satisfied that Motorola Home would land in a good place,”  Stanzione said. “Over the past few weeks, I’ve met with other major customers who have expressed similar sentiments, as well as an eagerness to get on with some of the projects that they had been planning for quite some time.”

He praised Motorola Home for pushing ahead on the product front, despite the disruptions that came with all the wheeling and dealing that occurred during the last two years. “From the time Google acquired Motorola Home until the closing with Arris on April 17...there was no let up within the R&D programs,” he said, adding that products that are in the pipeline now should help Arris accelerate sales in the third quarter.

Stanzione did not specifically address how Arris intends to deal with some of overlapping product lines, including edge QAMs, cable modems, cable modem termination systems (CMTS) and coming Converged Cable Access Platform (CCAP) products that will combine the CMTS and edge QAM functions. He said in April that Arris does not intend to sell off any redundant product lines, but will instead combine programs where there are overlaps.

Stanzione did note that the Arris’s “CCAP-ready” E6000 edge router is in the early stages of deployment, and APEX 3000, a high-density edge QAM originally developed by Motorola Home, is ready for delivery. He also sees increased deployments ahead for Dream Gallery, a multi-screen user interface also developed by Motorola Home.

Larry Robinson, a former Motorola Home exec who is now in charge of Arris’s Home Devices division, said the company is well-positioned to take advantage of a “significant transition” in which cable operators and telcos migrate toward video gateway architectures and away from the traditional set-top model.  He said several such programs are in the product qualification or trial phases, and expects launches to get underway in the third quarter.