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Video hardware

Moto Taps Tut for $39M

Motorola Inc. (NYSE: MOT) is buying video encoding vendor Tut Systems Inc. (Nasdaq: TUTS) for $39 million in cash, or $1.15 per share. (See Motorola to Buy Tut.)

Not surprisingly, the news created a rush on Tut's stock, which jumped by 15 cents, just over 15 percent, to $1.12 in pre-market trading this morning.

The acquisition, which is expected to close in the first quarter of 2007, gives Motorola a mature portfolio of video encoding, processing, and distribution products that enable cable operators to ingest video at head-ends and then distribute it around their networks in the most suitable formats. Tut's gear is deployed by about 160 service providers. (See Tut Enables MPEG Conversion , Tut Shows MPEG-4, Tut Goes Remote, and Report: Tut Tops IPTV.)

Tut's market experience is one of its key attributes. A recent Light Reading Insider report, IPTV & Content Delivery Networks: Who's Doing What, noted that Tut is "one of the few providers with live experience of MPEG-4 deployment, with deployments by Cavalier Telephone Inc. and Ace Communications, among others."

The report also notes that Tut believes "its MPEG-2-to-MPEG-4 real-time HD [High Definition] transcoder is unique in the market because rival HD transcoding products operate offline."

Today's move adds another piece to Motorola's video delivery infrastructure jigsaw. In September it acquired Vertasent for its network edge video and bandwidth management platform, and in July announced it was buying video server vendor Broadbus. (See Motorola Buys Vertasent and Moto Buys VOD Vendor Broadbus.)

Today's news will also end speculation that Motorola was shaping up a bid for one of Tut's rivals, Tandberg Television .

Motorola says the deal will be earnings neutral in the first year after the deal is closed, after one-off charges. Tut currently generates quarterly revenues in the high single digits and runs at a quarterly loss, usually in the low single digit millions. It reported revenues of $27.8 million in the nine months to the end of September 30.

Tut has undergone an upheaval this year as competition in the head-end sector has intensified, and was forced to reduce its headcount to cut costs earlier this year. (See Tut Tightens Belt in Tough IPTV Space.)

Its main rivals are Harmonic Inc. (Nasdaq: HLIT), Cisco Systems Inc. (Nasdaq: CSCO) outfit Scientific Atlanta , and Tandberg Television, which beefed up its presence in February by acquiring Skystream. (See Tandberg Compresses SkyStream.)

That increasing competitive pressure has enabled Motorola to pick up Tut on the cheap. While Tut's CEO, Sal D'Auria, is quoted in the Motorola announcement as saying that, as a result of the deal, "our stockholders will be able to receive value for their investment," a $1.15 offer is at the low end of Tut's 12-month range of $0.86 to $3.65.

In fact, Tut's stock has spent the major part of the past year trading above $2. (See stock chart.)



Motorola isn't the only major vendor sniffing around the video systems market for timely acquisitions: Cisco, which has been beefing up its video capabilities and smarts of late, is believed to be on the prowl for various video-related systems to buy, and is thought to be going head-to-head with Motorola in a bid to acquire video processing specialist Terayon Communication Systems Inc. . (See Motorola, Cisco Bidding for Terayon , Cisco Outlines Video Pitch, Cisco Steps Up Telco TV VOD, and Sources: Cisco Forming IPTV 'Ecosystem'.)

— Ray Le Maistre, International News Editor, Light Reading

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