Arris Marriage Dissolved

JIM BARTHOLD

While most other companies are getting married these days, one pair is calling it quits after five years together. Antec and Nortel Networks are breaking up their Arris Interactive marriage.

Antec will pay Nortel $325 million and 33 million shares of new stock for its 81.25% stake in the venture and the privilege of renaming itself Arris Inc. Nortel gets a 46.5% stake in Arris Inc.

The move came during Antec's confession that quarterly results were down and future earnings would lag forecasts. Even sweetened by the new Arris, the stock market didn't like the taste and dropped Antec's share value by almost half to its lowest point since February 1998.

Antec was not the only broadband communications vendor taking a stock hit on poor earnings and projections. Terayon Communication Systems' shares slipped about 50%.

New Arris Inc. president/CEO Bob Stanzione remained buoyant, saying, "Our expectations for next year are high. We'll become a very different company with very different financial performance. We'll be much larger, with higher network infrastructure product lines as new domestic and international business kicks in and the roll out of cable telephony business continues to accelerate."

For now, Nortel appears to be the winner. Besides the stock, cash and Arris Inc. ownership stake, Nortel can proceed with its plans to build an end-to-end Internet infrastructure unencumbered by a binding relationship with Antec.

"Look what Nortel has in its DNA," says Nortel VP Steve Pusey, who also served as chairman of Arris Interactive. "We know how to do quality in carrier grade (telephony). We know how to do 5-9s reliability, and we know how to do scaleable service provision. That's our forte."

The Arris relationship was stifling this.

"The venture has been fantastically successful," Pusey says. Nevertheless, he adds, "The access market has moved on."

Antec's cable network strengths will be a part of Nortel's overall plans, Pusey says.

"They will concentrate on the access part of the network; we will concentrate on the backbone and the service part of the network," he says. "The new Arris Inc. ... will deliver for us the integrated voice and data and Internet technologies and the access last mile delivery part of the network.

Antec's name change gave Stanzione the opportunity to inject a little positive into the negative results.

"Antec was basically coming to the street saying they missed earnings ... but oh, by the way, we now have Arris, and our total earnings with Arris are a little bit better than what we would have had before, because without Arris we would have just sucked lemons," says an industry source.

Nortel, the source says, "was caught in this complete tangled web with Antec, Arris, and they were screwed. They get $325 million in cash, and they get a large stake in this company. Whether it goes well or not, $325 is a great ROI (return on investment) from what they initially put into Arris anyway."