Arris has struck a deal to sell a manufacturing facility in New Taipei City, Taiwan, that makes consumer premises equipment such as set-tops and cable modems to long-time partner Pegatron Corp.
As a result, Arris said production of CPE will transition to Pegatron’s Suzhou site in China by the end of 2018. Arris said it will continue technology and development and business operations in Taiwan, including ops that came way of its recent acquisition of Ruckus Wireless.
Financial terms were not announced, but Arris reasoned that the sale will help it take advantage of Pegatron’s scale and will enable Arris to further its investments in emerging technologies and speed up its ability to innovate and bring new products to market. The sale also ties into a supply chain strategy at Arris that aims to work with “key partners” and “simplify its manufacturing footprint,” the company said.
An objective of the deal is to help Arris improve its corporate gross margins, which has been pressured by rising DRAM prices that could account for more than 5% of revenue today, up from 3% in 2016, Simon Leopold, analyst with Raymond James, explained in a research note.
He noted that Arris obtained the Taiwan facility from its $2.35 billion acquisition of Motorola Home in 2013, and that Arris moved some of its production there following its purchase of Pace plc in early 2016, while still using a contract manufacturing model that had been part of Pace’s strategy.
“With the sale of the Taiwan factory, ARRIS is largely out of the manufacturing of its CPE,” Leopold wrote, adding that Arris still has some production in Brazil.
"ARRIS's global vision is to leverage scale across a key number of global partners that allow us to concentrate on R&D, as well as anticipate the needs and expectations of our customers and their subscribers,” Jim Brennan, SVP, supply chain, quality and operations at Arris, said in a statement. “Pegatron is a long-term, trusted manufacturing partner of ARRIS, with a proven track-record of quality and performance, and we expect the transition to be seamless for our customers.”