Why Arris might bid on Ruckus Wireless assets? For its own customers, of course
Tom Paine
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Arris International, the ambitious strategic technologies vendor to the cable industry, and in particular to its two largest customers - Comcast and Charter, is said to be making a bid for up to $1 billion for the network equipment assets of Brocade Communications (NASDAQ: BRCD), primarily composed of the Ruckus Wireless business acquired by Brocade just this past August for $1.5 billion.
Subsequent to that acquisition, Broadcom, (NASDAQ: AVGO) announced in November that it was acquiring Brocade for $5.9 billion. Broadcom indicated that it didn't want to hold on to parts of Brocade's business for which it had overlapping products, or products that competed with its customers, and that Ruckus Wireless was among the assets it would shed.
But Ruckus itself is no ugly duckling, having built some of the most innovative solutions in the WiFi Network space.
Arris, based outside of Atlanta, has a large presence in Horsham from its acquisition of Motorola Home from Google in 2013. It also maintains a small office in downtown Philly to stay close to Comcast headquarters. Arris (NASDAQ: ARRS) has warrant agreements with both Comcast and Charter through which the two companies will buy a small percentage of Arris shares depending upon factors such as how much they purchase key products from it.
Arris made another big splash at the beginning of 2016 by acquiring UK-based Pace plc for $2.1 billion.
So with Comcast and Charter both moving into the wireless space, Arris started thinking, perhaps encouraged by its major customers, that maybe it ought to as well. On Thursday, Arris CFO David Potts, speaking at a Needham investor event, said: “As we continue to grow, we believe that it’s possible that we could get into adjacent markets. As an example, wireless … what happens in wireless, WiFi should we be more involved in that?" On Friday, Reuters ran the report, citing sources, that Arris would bid on the Ruckus Wireless business.
Why is this important to Arris? Comcast, and presumably Charter, are planning to enter wireless with a hybrid system, utilizing their dense and widespread WiFi networks in conjunction with their MVNO leased access from Verizon (and Sprint in Comcast's case), and other spectrum they may acquire or lease. But hybrid is tricky, and takes complex technology to make it function well. Google's Project Fi is one example of a hybrid system that is operational.
Ruckus is one of the leaders in the hybrid field. Its worked closely with Google on WiFi initiatives, though I can't confirm what role it may play in Project Fi.
Ruckus also sees the 3.5 GHz Citizens Broadband Radio Service (CBRS) as an opportunity for cable providers to offer a stronger indoor 5G LTE solution, with boosts from small cells. Robust indoor LTE is difficult to maintain, and this might give cable more leverage over mobile providers.
A decision by Broadcom is expected by the end of the month. PE firms have interest, and other network equipment vendors could bid but none have been publicly identified to my knowledge.
