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Is Netopia Buy-Out Bait?

Light Reading
News Analysis
Light Reading
6/29/2006

Could Netopia Inc. be the next prize in the land grab for residential gateway and remote management software real estate?

It could be so, as sources say that several companies are now looking at the company, which sells DSL residential gateways and remote management software used by carriers to control the gateway from afar. This has become a strategic area for large equipment OEMs, which are looking at deploying and managing an array of new services distributed in the consumer's home.

Netopia is a public company that was relegated to the OTC market after the bubble burst, recently carrying a market capitalization of about $120 million. It is now trying to crawl back to a regular Nasdaq listing by returning to profitability. In its most recent public filings, it listed $27 million in revenue and a small proift of $594,000 for the quarter ended March 31.

Makers of broadband access gear, which have been forming closer ties with companies like Netopia, appear to be the most likely suitors. This comes in response to carriers' desire for a seamless hardware/software platform over which to deliver IP services to the home and manage them once they’re there, analysts say. (See RBOCs Want Inside Your House.)

"Especially for video, there's starting to be more and more integration between the access network and the home gateway or the termination point of the access network in the home, whatever that may be," says Heavy Reading senior analyst Rick Thompson. (See IPTV Drives Home Networking.)

Examples aren't hard to find, as Thompson points out: "You look at Cisco picking up Scientific-Atlanta and Linksys and making a whole play around home networking. Look at Alcatel investing in 2Wire, and Siemens has some pretty significant investments in the home networking space." (See Alcatel Buys Into 2Wire and Cisco to Acquire Scientific-Atlanta.)

"All of that is really a play to have a piece of that end-to-end triple-play network," Thompson notes. "So a company like Calix could extend its expertise in access networking into home networking as well."

Remote management software is the "middleware" used by carriers to control and monitor the residential gateway, the carrier's access point to the home network. The software lets carriers remotely configure devices like set-top boxes and VOIP phones, push new services or modify existing ones, manage QOS, and do a host of other things. (See Broadband Policy Servers.)

Netopia was demonstrating its residential gateways and remote management software solutions with Calix Inc. (NYSE: CALX) at Globalcomm. Thompson says, however, that acquiring a company like Netopia should not be seen as a "must-do" for Calix. (See Calix Networks Inc.)

Still, some nice things might come of it.

Remote management software vendors like Netopia might find their way into larger carrier accounts by becoming part of a larger access gear company. Netopia, for example, employs only about 100 people, identifies itself in SEC filings as the smallest company in its space, yet acknowledges that it needs to win ILEC accounts to hit its sales targets.

Carriers might like the idea of having one less vendor to deal with.

Calix points out that the people at the carrier who monitor and use remote management software are often the same people charged with watching the performance of the access network. Calix has developed an interface for use by carrier network engineers and support center personnel that monitors its c7 remote access boxes and the Netopia remote management platform, according to Calix VP of business development Rick Johnston.

"So that you don't have two separate management interfaces, what we're trying to do is simplify that interface for our customers so they don't have a separate Netopia interface but have that interface integrated into the Calix management system," Johnston says.

Johnston notes that Calix and Netopia have been working together for almost two years. Asked whether Calix was currently in M&A discussions with Netopia, Calix marketing VP Kevin Walsh was a little vague: "We wouldn't comment on that even if we were, or even if we weren’t."

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