Bucking for Digeo

5:45 PM -- Considering that more than $100 million has reportedly been plowed into Digeo Inc. over the years (Digeo still refuses to admit exactly how much has been sunk into it), Arris Group Inc. (Nasdaq: ARRS) has apparently struck a decent bargain by picking up the assets of the set-top box and software company for $20 million. (See Digeo Gives Arris Multimedia Gateway Potential and Arris Digs Digeo .)

There's no evidence that a bidding war got the price there, but Digeo was shopping itself around to anyone and everyone who would listen, we're told.

"It's been on the block for a while. Everybody poked at that thing," says an exec with a cable box maker.

But only Arris poked back with an offer that apparently even Paul Allen couldn't refuse.

On a call this morning with reporters, Digeo CEO Greg Gudorf acknowledged that the Digeo board approved a plan in the spring to "figure out a way to leverage Moxi [the brand name of Digeo's boxes and nav systems] on a larger stage." A sale to Arris, he said, emerged as the "best fit" for bringing that strategy forward.

Digeo has about 300,000 units in the field today with operators such as Charter Communications Inc. , BendBroadband , and Time Warner Cable Inc. (NYSE: TWC), with most of those boxes sold before the company launched a CableCARD HD-DVR model for direct-to-MSO distribution, and a more expensive and feature-rich retail box.

And there's not much to brag about yet when it comes to Digeo's retail effort, even though the box was released for sale just nine months ago. Gudorf wouldn't say how many units have been sold, but it can't be much. "This [retail] economic is not a big part of the revenue stream now," he said.

Arris execs said, along with Digeo's engineers and technology, which include 130 patents and 58 more pending, it will retain rights to the Digeo and Moxi brands, but acknowledged that Arris is new to this whole retail thing. (Any bets on how long Arris will actually keep the retail flame aflicker after the deal's sewn up?)

In the meantime, Arris said the added R&D required for Digeo ($3 million per quarter) will dilute its fourth-quarter earnings by 2 cents per share. Morgan Keegan & Company Inc. analyst Simon Leopold expects it to dilute 2010 earnings by 4 cents per share.

— Jeff Baumgartner, Site Editor, Cable Digital News

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