Horsham firm riding TV set-top box boom [The Philadelphia Inquirer :: ]
(Philadelphia Inquirer (PA) Via Acquire Media NewsEdge) April 20--Bob Stanzione, one of the nation's top telecom-equipment executives, was recently visiting the sleek former Motorola campus in Horsham and making an important point: Those who wrote the obituary for cable-TV set-top boxes because of the Internet and smart TVs got it wrong.
"You have a lot of stuff coming into the home, and it's coming through one of these boxes," said Stanzione, whose Suwanee, Ga., ARRIS Group Inc. now owns the Horsham business. "The in-home box business is thriving. It is not dying. We are going through a refresh cycle and I think we are in the early stages of it."
He added, "Boom is not an exaggeration. The amount of business now is very healthy."
This month, Verizon Communications Inc.'s FiOS TV service launched a two-box video media server that can digitally record (or DVR) 12 TV shows at once. ARRIS, with about 1,000 employees in Horsham, is the only supplier of the equipment to Verizon.
"Calming the Family Feud: The End of the DVR Wars," Verizon says in its marketing literature for the product, noting that customers could store two terabytes of movies and TV shows.
This follows by several months Comcast Corp.'s launch of its cloud-based X1 set-top box and channel guide -- ARRIS also supplies the X1 equipment to Comcast -- that blurs the line between the Internet and TV.
Set-top boxes translate the stream of data on a cable-TV network into TV shows and movies. They also enable the channel-guide functions and could include WiFi.
"I think the TV fell behind the tablet, the laptop, and the smartphone. Now we are seeing more attention on the TV," Stanzione said.
The set-top box resurgence, along with the new corporate owner, has breathed life into the set-top box business. As part of Motorola and later Google Inc., the drama over Motorola mobile phones overshadowed the steadier set-top box business.
But ARRIS believed the cable- and Internet-related equipment could fit nicely with its portfolio of telecom equipment and bought the business -- not including Motorola phone -- from Google for $2.4 billion in cash and equity in April 2013.
Because of the acquisition, ARRIS more than doubled its revenue between 2012 and 2013 -- $1.4 billion to $3.6 billion -- and tripled the number of employees.
Google and Comcast helped finance the deal by buying equity in ARRIS. Google owns 10.6 million shares, or 7.5 percent, of ARRIS. Comcast owns 7.2 million shares, or 5.1 percent. "They wanted this to be a healthy supplier," Stanzione said of Comcast's investment.
ARRIS's regulatory filings show that 18.6 percent of its sales, or $675 million, were to Comcast in 2013. Time Warner Cable Inc. accounted for 9.9 percent of ARRIS's sales in 2013, or $359.5 million.
If state and local governments approve Comcast's proposed $45.2 billion deal for Time Warner Cable, the combined cable-TV and Internet entity could account for more than $1 billion in revenue at ARRIS. Stanzione said he was not worried.
After the Motorola acquisition, ARRIS divided its business into "network and cloud" and "customer premises" equipment.
In addition to set-top boxes, ARRIS manufactures and sells cable modems for Internet service, cable modem gateways with wireless routers, and network equipment routing Internet and data traffic. A growing part of its business is software related to multi-screen viewing and data streaming.
The company designs and engineers equipment at the four-building Horsham campus, which Stanzione called a flagship location -- partly because it's near ARRIS's big Northeast customers. The company also has its sales, marketing, and supply-chain management officials there. It's hiring in Horsham with the rebound in the business, company officials say.
ARRIS assembles set-top boxes in a plant in Taipei, Taiwan, that employs 940 people. It operates a Mexican plant and contracts with manufacturers in China, Thailand, Israel, and the United States.
One ARRIS core strength, Stanzione noted, is efficiently sourcing many parts: computer chips, plastic, nails, screws, wires, and the like, for one set-top box -- about 1,000 parts per box. ARRIS uses about 35 billion parts a year in its manufacturing.
One fear among pay-TV operators is that over-the-top Internet streaming companies such as Netflix and Apple TV could lead people to cancel their pay-TV service. But Stanzione said, "I'd love to see everybody have an Apple TV because it drives so much [Internet traffic] it would put so much strain on the network that our network business would benefit."
Telecom equipment can be a ruthlessly competitive business. Tough times followed the dot-com bubble.
"We need to be a company that changes as quickly as the environment changes," Stanzione said. "If you are not agile enough, you get left behind. I think we will be around a long, long time."
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