By Daniel Simmons, the Director of Connected Home Analysis at IHS Technology
ARRIS’s acquisition of Pace will create the world’s largest supplier of set-top box (STB), broadband gateway and cable TV technology.
Combined 2014 revenues of USD 7.9 billion make it twice the size of its nearest competitor, Cisco’s Service Provider Video business unit. ARRIS’s business is largely US-cable-TV-centric and its recent growth is a direct result of its 2013 Motorola Home acquisition.
Future growth for ARRIS critically depends on it expanding outside of the US, where its current growth opportunity is limited by a stagnating pay TV market. Pace will bring ARRIS an expansion of width and scale that would be difficult for it to achieve organically.
Pace has a large portfolio of high-value pay TV operator clients in EMEA and APAC, a large scale satellite STB business, a strong play in DSL gateways, and a long-standing relationship with DirecTV; all things ARRIS currently lacks.
However, Pace’s STB and broadband gateway business slowed in 2014, and is indicative of a global slowdown in this sector and reflected in ARRIS’s USD 2.1 billion offer, which effectively values Pace at 80% of its 2014 revenue. It’s likely that we’ll see further consolidation in this sector in the near future, with the value of the STB industry expected to fall from USD 22.7 billion in 2014 to USD 18.8 billion by 2019.
ARRIS’s largest opportunity will come from supplying the combined customer base of pay TV operators with products and solutions that help them succeed against competition from Over the Top (OTT) video and television providers such as Apple and Netflix. It will also help them succeed against the competition from content creators looking to use OTT as a means of bypassing pay TV to go direct to consumer. These solutions will only partially include STBs and will place greater emphasis on network and cloud technologies as well as software designed to optimise the user experience. The need to include these elements in a modern TV platform will drive ARRIS and its competitors to make further acquisitions.