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Motorola's move for Terayon will flesh out its digital video gear and position it for a battle against Cisco and Arris
April 23, 2007
A move by Motorola Inc. (NYSE: MOT) Monday to acquire Terayon Communication Systems Inc. for $140 million will flesh out the company's digital video portfolio and stabilize its footing with competitors such as Cisco Systems Inc. (Nasdaq: CSCO) and Arris Group Inc. (Nasdaq: ARRS). (See Motorola to Buy Terayon for $140M.)
The central component of the deal is the "CherryPicker," a digital video processing platform considered Terayon's flagship product after the vendor exited the cable modem and cable termination system (CMTS) market. Terayon acquired Imedia Corp., the original developer of the CherryPicker, in 1999 for about $100 million.
The addition of Terayon will enable Motorola to shore up its video technology, particularly in the emerging areas of digital program insertion and switched digital video.
"Terayon gives us a lot of great capabilities there," a Motorola spokesman says.
The Terayon deal also will position Motorola to compete with others in the highly competitive digital video sector, including Cisco and Arris, which were both in the running for Terayon at one time or another. (See Moto & Cisco Joust for Terayon.)
"Now that Terayon looks to end up in Motorola's hands, this creates a stronger competitor to Arris and across the cable TV infrastructure space," said ThinkEquity Partners analyst Anton Wahlman, in a research note issued Monday.
While multiple companies have circled Terayon in recent months, a rival bid, such as the one Ericsson AB (Nasdaq: ERIC) launched for Tandberg Television , is considered unlikely. (See Tandberg Board Backs Ericsson Bid and Ericsson Completes Offer.)
"We think the drawn-out M&A process has flushed out all potential acquirers of [Terayon], and thus, we do not expect a rival acquirer to emerge at this point," said Friedman Billings Ramsey & Co. Inc. analyst Brian Coyne, in a note issued Monday.
Coyne deemed the financial terms of the deal "fair," citing "somewhat diminished near-term prospects" for the CherryPicker as well as any additional investment Motorola might need to make to adapt Terayon's technology for other applications.
Motorola should be getting comfortable with the prospect of technical integrations, considering it has enhanced its video strategy via the recent aquisitions of video-on-demand specialist Broadbus Technologies and edge resource management startup Vertasent. (See Moto Buys VOD Vendor Broadbus and Motorola Buys Vertasent.)
Also, thanks to deals for IPTV firms such as Tut Systems Inc. (Nasdaq: TUTS) and Kreatel, Motorola has been developing broader headend and set-top systems that will fuel a more flexible strategy to support, not only traditional cable networks, but those supported by telcos and other suppliers of IP-based video services. (See Motorola Acquires Kreatel and Moto Taps Tut for $39M.)
But Motorola says the deal is more than about products. "We also think the engineers and the intellectual property are just as important to this deal," the company spokesman says.
Terayon has about 110 employees, while Motorola's Connect Home Solutions division, which is set to absorb Terayon, has in the range of 3,500 to 4,000 employees. A Motorola spokesman says the company will make personnel assessments and any necessary adjustments after the deal is closed.
Once finalized in the second or third quarter of 2007, the acquisition will close the book on Terayon, which has refocused its energy and resources on digital video gear and applications, and away from its original bread and butter -- cable modems and CMTSs.
On the digital video front, Terayon recently introduced a set of applications for the CherryPicker. Those apps, which include "Static Graphic Overlay," "Motion Graphic Overlay," and "Squeezeback," enable cable operators to insert items such as logos, bugs, and crawls directly into the compressed digital video feed. (See Terayon Updates Its CherryPicker .)
Terayon also was an early champion of Docsis 2.0, a CableLabs spec that boosts a cable operator's upstream and mitigates plant noise. However, most cable operators did not deploy Docsis 2.0 CMTSs right away, opting instead for Docsis 1.1 headend gear in support of VOIP deployment plans. Terayon ceased CMTS-related investments in October 2004.
Shrinking unit margins, meanwhile, contributed to Terayon's decision to bug out of the cable modem business. It sold its cable modem assets and intellectual property to ATI Technologies Inc. (Nasdaq: ATYT; Toronto: ATY) in February 2005 for $14 million.
— Jeff Baumgartner, Site Editor, Cable Digital News
Senior Editor, Light Reading
Baumgartner also served as Site Editor for Light Reading Cable from 2007-2013. In between his two stints at Light Reading, he led tech coverage for Multichannel News and was a regular contributor to Broadcasting + Cable. Baumgartner was named to the 2018 class of the Cable TV Pioneers.
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