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RGB: Ripe for Aquisition?

Is digital video upstart RGB Networks the next coveted target in the digital video sector? The company says no, it'll IPO

Jeff Baumgartner

April 24, 2007

3 Min Read
RGB: Ripe for Aquisition?

Now that Terayon Communication Systems Inc. is off the table and BigBand Networks Inc. (Nasdaq: BBND) has taken the IPO route, is digital video upstart RGB Networks Inc. the next coveted target?

"We've said, frankly, that the company is not for sale," says Jef Graham, RGB's chairman and CEO.

Instead, RGB, he adds, will focus on building its business and possibly tee up an initial public offering in spring 2008.

Some analysts and industry observers believe RGB could come into play earlier than expected in the wake of a pending $140 million offer from Motorola Inc. (NYSE: MOT) for Terayon, a company that overlaps RGB in some technology and product areas. (See Motorola to Buy Terayon for $140M and Moto Bulks Up Against Cisco, Arris .)

RGB's technology, however, is considered to be a generation or two ahead of Terayon's, and Motorola likely will have to pump some R&D dollars into the Terayon line to get it up to snuff. What Motorola certainly did buy is market share, as Terayon has shipped north of 7,800 units of its flagship product, the CherryPicker.

Similar to when Terayon was on the block, those interested in RGB could include the likes of Arris Group Inc. (Nasdaq: ARRS), Cisco Systems Inc. (Nasdaq: CSCO), and Harmonic Inc. (Nasdaq: HLIT).

Some analysts privately wonder whether Motorola, RGB's main resale partner, may enter the hunt for RGB as well.

Graham is confident that RGB, if it ever decides to sell, will fetch more than Terayon did.

"We like to think we're a rare and valuable asset right now," Graham says.

RGB, founded in 2001, has sold more than $30 million in products so far and is on course to reach sustained profitability by the end of 2007, Graham says. He believes RGB will pull down in the range of $80 million to $100 million in revenues next year, about double what the company expects to do this year.

RGB has raised $37 million so far, has "lots of cash left," and doesn't expect to require additional fund raising, Graham says. Comcast Interactive Capital is among RGB's financial backers.

RGB is busy paving a growth path, with plans in 2007 to expand its presence in Europe and Asia and add to its product line. It finished the first quarter with 85 employees and will likely close in on 100 by the end of the current quarter.

Although it cut its teeth on cable, RGB is already pursuing contracts with telcos and other IPTV service providers.

Motorola's play for Terayon "wasn't a surprise for us," says Graham, but the deal will alter RGB's relationship with Motorola due to some product overlaps between RGB and Terayon. That such overlaps exist is no surprise, considering Adam Tom, an RGB founder, also founded Imedia Corp., the company that originally developed the CherryPicker.

Motorola presently resells an RGB product line that includes the Simulcast Edge Processor (SEP), a digital video grooming device called the Broadcast Network Processor (BNP), and the Modular Media Converter (MMC), a product that handles ASI-to-Gigabit Ethernet conversions.

Terayon products compete with the BMP and MMC, so Motorola will not resell those models after it completes the acquisition of Terayon. RGB, Graham says, is already in the process of seeking new channel partners.

Still, RGB "doesn't expect to see a detrimental effect" from the change, because Motorola will continue to sell the SEP, which makes up the bulk of Motorola sales of RGB products.

"We can keep things on a friendly basis," Graham says of RGB's primary partner. "The good news is that our products are proven."

RGB says it has shipped more than 1,400 SEPs, representing just over 85 percent of its total shipments. The company has disclosed deployments with operators such as Time Warner Cable Inc. (NYSE: TWC) (TWC) and Adelphia Communications, whose assets and systems have since been sold to TWC and Comcast Corp. (Nasdaq: CMCSA, CMCSK). (See Adelphia Acquisition Completes.)

— Jeff Baumgartner, Site Editor, Cable Digital News

About the Author(s)

Jeff Baumgartner

Senior Editor, Light Reading

Jeff Baumgartner is a Senior Editor for Light Reading and is responsible for the day-to-day news coverage and analysis of the cable and video sectors. Follow him on X and LinkedIn.

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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