ARRIS Group, Inc.

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ARRIS Group, Inc.

3871 Lakefield Drive
Suwanee, Georgia 30024 U.S.A.
Telephone: (770) 622-8400
Toll Free: (800) 469-6569
Fax: (770) 622-8770
Web site:http://www.arrisi.com

Public Company
Incorporated: 1991 as ANTEC Corp.
Employees: 781
Sales: $891.5 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: ARRS
NAIC: 334220 Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing; 334290 Other Communication Equipment Manufacturing

THE LEGACY OF ARRIS GROUP

FORMATION OF ARRIS INTERACTIVE: 1995

ARRIS GROUP IN THE 21ST CENTURY

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

THE LEGACY OF ARRIS GROUP

The formation of Arris Group in 2001 did not represent the first stirrings of a start-up venture. There was history behind the company’s first day in business, the legacy of products, people, and assets that linked the Arris Group name to the evolution of numerous companies.

Companies such as TeleWire Supply, Anixter, Inc., ANTEC Corp., LANcity Corp., Bay Networks, Inc., Arris Interactive LLC, and Nortel Networks Corporation each played a significant role in creating the enterprise that debuted as Arris Group in 2001. Although the company that officially started operating on August 3, 2001, was the newest member of the broadband access industry, the profile it cast on its first day reflected the face of a pioneer. Its stature as an innovator and market leader was inherited, representing the achievements recorded in the years leading up to the turn of the 21st century.

The events that led to the formation of Arris Group followed the paths of its predecessor organizations, companies whose distinct existences became intertwined through a series of mergers and acquisitions. The roots of Arris Group stretched to Anixter, Inc., and its entrance into the cable industry in 1969. An equipment maker, not a service provider, Anixter partnered with AT&T to develop the cable industry’s first analog video laser transmitter, introducing the groundbreaking product in 1988. The company’s most important contributions to Arris Group occurred around the time its collaboration with AT&T bore fruit. In 1987, Anixter acquired TeleWire Supply, which later became Arris Telewire Supply, a distributor of broadband communications infrastructure and customer premise equipment. In 1991, arguably the most significant event leading up to Arris Group’s formation occurred, the creation of the company’s direct predecessor.

Anixter established ANTEC Corp., a Duluth, Georgia-based enterprise that began as a distributor of cable television equipment before becoming a manufacturer of broadband, Internet-access equipment. ANTEC completed its initial public offering (IPO) of stock in 1993, which financed an acquisition campaign the following year that substantially increased product development and manufacturing capabilities. ANTEC acquired Electronic System Products, Inc., an engineering consulting firm involved in digital design, radio-frequency design, and developing application-specific integrated circuits for the broadband communications industry. Next, the company purchased Power Guard, Inc., a manufacturer of power supplies and high-security enclosures for broadband communications networks. Before the end of 1994, ANTEC completed its third acquisition, the purchase of Keptel, Inc., a manufacturer of telecommunications and transmission equipment for residential and commercial use.

FORMATION OF ARRIS INTERACTIVE: 1995

By completing its three acquisitions, ANTEC substantially changed its role in the cable industry. The company turned from a distributor of equipment for cable television into a manufacturer of equipment for the emerging broadband, Internet-access market. The transmission of data at high speeds using the same coaxial cable that delivered programming into subscribers’ homes represented a promising business to explore, heralding, as some industry experts forecasted, the proliferation of broadband connections at the expense of dial-up connections using telephone wires. ANTEC deepened its involvement in the nascent market one year after completing its broadband equipment purchases by collaborating with Toronto, Canada-based Nortel Networks Corporation. Nortel, on its way toward becoming a dominant force in the network-equipment market, formed a joint-venture company named Arris Interactive L.L.C. with ANTEC in 1995. Arris Interactive, 75 percent–owned by Nortel and 25 percent–owned by ANTEC, was established to develop and to manufacture products capable of delivering telephone and data services over HFC cable, creating one of the principal entities that later constituted Arris Group.

COMPANY PERSPECTIVES

ARRIS continues to develop new revenue-producing technologies for the telecommunications industry. The ARRIS vision is one of voice, video and data traveling over integrated broadband networks from the headend to the home, and then throughout the home. The convergence of multimedia over one common IP platform will allow providers to create innovative crossover services, as well as unleashing many new consumer-friendly applications, such as videophone, appliance monitoring and control, security, meter reading and everything-on-demand.

Another facet of Arris Group’s business was grabbing headlines in the business press while Arris Interactive’s main office opened in Suwanee, Georgia. To the north, the realization of pervasive broadband Internet access took a monumental leap forward in 1995, when the pioneer of high-speed data products introduced the first residential-use cable modem. Andover, Massachusetts-based LANcity Corp., a company founded and led by Rouzbeh Yassini, released the LAN-city Personal Cable TV Modem the same year Arris Interactive was formed, a product that provided twoway, ten megabits-per-second (Mbps) connectivity for $595. LANcity’s cable modem, 1,000 times faster than existing dial-up modems, sold for substantially less than existing cable modems, which ranged in price between $5,000 and $15,000, making the widespread use of cable modems a legitimate hope. Yassini hailed the innovation in an interview published in the July–August 1995 issue of Link-Up magazine, referring to the LAN-city device as “the first cable television modem ever developed to operate over any commercial cable television channel, [thereby] extending the same power of corporate business networks to today’s 500 million worldwide home cable television subscribers.” One interested observer, Billerica, Massachusetts-based Bay Networks, Inc., saw an opportunity it could not resist, providing another link to the chain of events that created Arris Group.

Bay Networks ranked as a leader in the data-networking market, a position it sought to strengthen by acquiring LANcity. In 1996, Bay Networks purchased LANcity, paying $59 million to gain control of the most prolific producer of cable modems in the world. LAN-city became a Bay Networks division once the deal was concluded, but the high-speed, data-products pioneer did not have long to settle into its new ownership arrangement. Nortel was in the midst of a heated battle with Cisco Systems Inc. and Lucent Technologies Inc. to integrate voice and data networking capabilities, often referred to as “convergence,” for corporate customers. Nortel held a strong position in the voice segment of the networking business, but it lacked strength in the data segment, which prompted it to make a bid for Bay Networks, a data-networking specialist. The two companies merged in 1998, a $9 billion deal that folded Nortel’s relatively small data-communications business into Bay Networks. In the wake of the mega-merger, the largest in the networking industry at the time, Nortel restructured its operations to compete more effectively against Cisco and Lucent, setting the stage for the debut of Arris Group.

One part of the Nortel reorganization program involved its joint venture with ANTEC, Arris Interactive. In 1999, when Arris Interactive generated $329 million in revenue, Nortel sold its broadband technology division to Arris Interactive, a transaction that increased Nortel’s stake in the joint venture to 81.25 percent and reduced ANTEC’s ownership interest to 18.75 percent. At the time of the sale, Arris Interactive’s product portfolio included Cornerstone, a leading product in the cable telephony market, and Packet Port, a leading product in the market that combined Internet access and cable telephony devices. With the addition of Nortel’s broadband technology division, Arris Interactive gained, among other assets, the business formerly operating under the LANcity banner. The combination created a vibrant, fast-growing business, one that recorded a 142 percent increase in revenues during the first half of 2000. Before the end of the year, another major realignment occurred after Nortel and ANTEC announced their intention to reorganize their cable businesses into a new company, a company that would acquire Nortel’s stake in Arris Interactive and absorb ANTEC as a wholly owned subsidiary. “This realignment,” a Nortel vice-president said in an October 18, 2000, interview with Canadian Corporate News, “will make visible for the first time the tremendous value we and ANTEC have built inside Arris Interactive in five short years.” Another Nortel vice-president provided a more thorough explanation in a December 2000 interview with CED. “It wasn’t so much a sale as a way of structuring the business to get real value out of it,” the senior executive said. “What that does is allow the marketplace to place value on the cable access market for broadband technologies, whereas they really can’t value anything within Nortel that addresses that market space.”

ARRIS GROUP IN THE 21ST CENTURY

A new leader in the broadband, cable-access industry was set to emerge, a company that represented the combination of Arris Interactive, ANTEC, and LAN-city, which together controlled 70 percent of the global telephony market. In August 2001, the final steps were taken to create the new entity. A holding company named Arris Group was formed, which acquired Nortel’s interest in Arris Interactive for 49.2 percent of Arris Group stock (the remaining 50.8 percent of Arris Group stock was distributed to ANTEC shareholders). ANTEC, in name, disappeared after merging with an Arris Group subsidiary and changing its name to Arris International, Inc. The result was a new leader in the cable telephony industry with revenues of $747 million in 2001.

KEY DATES

1991:: Anixter, Inc., establishes ANTEC Corp., Arris Group’s direct predecessor.
1993:: ANTEC completes its initial public offering of stock.
1995:: ANTEC and Nortel Networks Corp. form a joint venture company named Arris Interactive L.L.C.; LANcity Corp. introduces the first residential-use cable modem.
1996:: Bay Networks, Inc., acquires LANcity.
1998:: Nortel acquires Bay Networks.
1999:: Nortel sells its broadband technology division, also known as LANcity, to Arris Interactive.
2001:: Arris Group is formed to acquire Arris Interactive and ANTEC.
2002:: Arris Group acquires Cadant, Inc.
2007:: Arris Group is outbid by Ericsson for Tand-berg TV ASA.

Arris Group’s product lines and technological expertise came from its predecessor companies and so too did its senior management. Robert J. Stanzione, Arris Group’s president and chief executive officer, spent 26 years serving in various capacities at AT&T before joining Arris Interactive as president and chief executive officer during the joint venture company’s first year in business. At Arris Group, Stanzione was joined by Lawrence A. Margolis, who served as general counsel for Anixter during the 1980s before becoming ANTEC’s chief financial officer in 1992, a title he held initially at Arris Group until he was appointed executive vice-president of strategic planning and administration and chief counsel in 2004. Margolis’s post as chief financial officer was filled by David B. Potts, the former chief financial officer of Arris Interactive.

Under the guidance of its leadership team, Arris Group completed several transactions during the first decade of the 21st century. The company sold two product lines, Actives and Keptel, in 2002 that represented a more than $100 million reduction in its annual revenue volume. Also in 2002, a portion of the revenue loss was offset by the acquisition of Cadant, Inc., a designer and manufacturer of advanced, cable modem termination systems. In 2003, the company completed two acquisitions, purchasing Atoga Systems, a Fremont, California-based developer of optical transport systems, and the cable modem termination system-related assets of Com21, which included the control of Com21’s Irish subsidiary. In 2005, Arris Group acquired cXm Broadband L.L.C., a purchase that provided entry into the Korean market for high-speed data access into multi-dwelling units.

At the end of 2006, Arris Group’s revenues reached $891 million, at which point the company was ready to make the boldest move in its history. Networking companies’ pursuit of convergence—Nortel’s goal in purchasing Bay Networks—had added a third objective, voice services, the “triple-play” of integrating voice, data, and video services. Arris Group held a strong position in voice and data, but its video capabilities were lacking, prompting the company to submit a bid in January 2007 for Tandberg TV ASA. A Norwegian company, Tandberg operated as a digital video solutions provider, offering products for advanced compression, on-demand, and interactive television. The company generated $350 million in revenue in 2006. Arris Group offered $1.2 billion for Tandberg, seeing an opportunity to draw closer to rivals Cisco and Motorola, Inc., but the company’s hopes were dashed in April 2007 when Swedish telecommunications company Ericsson submitted a $1.38 billion bid for Tandberg, which Tandberg accepted. Arris Group failed in its attempt to gain a stronger footing in the video services area, but in the years ahead the company was expected to try again. Stanzione and his management team were chasing the triple-play goal, and the acquisition of a company with expertise in video offered the quickest route to fulfilling their objective.

Jeffrey L. Covell

PRINCIPAL SUBSIDIARIES

Electronic Connector Corp.; ARRIS Korea, Inc.; ARRIS International Netherlands, B.V.; ARRIS International Iberia, S.L. (Spain); Communicaciones Broadband S.A. de C.V. (Mexico); ANTEC Latin America, Inc., Sucursal Argentina; ANTEC Do Brasil LTDA (Brazil); Arris International Japan Kabushiki Kaisha (Tokyo); ARRIS International Communicaciones (Chile); Arris Communications Ireland Limited.