Cable Tech

Zoran Targets Broadcom With Microtune Buy

Digital set-top and TV chipmaker Zoran Corp. (Nasdaq: ZRAN) is putting Broadcom Corp. (Nasdaq: BRCM) on notice after inking a $166 million deal for Microtune Inc. (Nasdaq: TUNE), a key supplier of silicon tuners for Docsis cable modems and set-tops.

Zoran plans to integrate Microtune's silicon tuners into its lineup of system-on-chips (SoCs) for digital TVs, set-tops, and DVD players. It's a strategic play that could put Zoran on better competitive footing with Broadcom, which makes its own silicon tuners.

The deal will "strengthen our position in the set-top box market, where we have been intensifying our focus," Zoran president and CEO Levy Gerzberg said on a conference call Wednesday morning. "For us, it was a very natural area for expansion."

Zoran already competes with Broadcom in the Digital Terminal Adapter (DTA) chipset market, supplying silicon to vendors such as Evolution Digital LLC.

"I think it's going to have a big impact on the competitive landscape, because there hasn't been a lot of [cable set-top] competition for Broadcom," says Heavy Reading senior analyst Alan Breznick, noting that the deal might also help Zoran jump-start its flagging DTV business.

Where's Intel?
The deal comes as a bit of a surprise. Intel Corp. (Nasdaq: INTC), which is in the process of buying Texas Instruments Inc. (NYSE: TXN)'s cable modem business, was viewed as a potential Microtune suitor. Intel could still complete the tuning piece of its video gateway puzzle by sweetening a bid for Microtune or by trying to buy MaxLinear Corp. . (See What's Intel's Next Move? and Intel Snares TI's Cable Modem Business .)

Microtune, founded in 1996, has been in the silicon tuner game longer than MaxLinear but sports the smaller market cap of the two. Microtune also makes tuners for digital televisions, but most of its revenues still come from the cable set-top and cable modem markets.

Microtune president and CEO Jim Fontaine estimated that his company currently has 85 to 95 percent of the Docsis 3.0 silicon tuner market, but acknowledged that Broadcom, which entered the Docsis 3.0 chipset market later, is starting to catch up.

Fontaine also downplayed concerns that Microtune's longstanding Docsis modem relationship with TI could be strained because Zoran's and Intel's latest deals put them in closer competition in the cable set-top market. "It makes good partners when you have a common enemy in terms of Broadcom," he said on today's call. "Certainly we both need each other to compete in the marketplace."

Deal static
The deal would have Zoran paying $2.92 in cash for each share of Microtune's common stock, a 19 percent premium over Microtune's Sept. 7 closing price. The companies hope to close the deal by mid-November. Microtune has 262 employees, and it's not yet known how many would join Zoran. (See Zoran to Buy Microtune.)

But the deal has already hit a bump in the road. Law firm Levi & Korsinsky is investigating whether the Microtune board failed to adequately shop the company before coming to terms with Zoran. Two others -- The Briscoe Law Firm and Finkelstein Thompson LLP -- are investigating the fairness of the deal, noting that at least one analyst has set a target price of $5 per share on Microtune.

Microtune shares were up 18.83 percent, to $2.93 each, on the news in midday trading Wednesday. The opposite was true for Zoran -- its shares fell 7.42 percent, to $2.93.

— Jeff Baumgartner, Site Editor, Light Reading Cable

mlevand 12/5/2012 | 4:24:11 PM
re: Zoran Targets Broadcom With Microtune Buy

Let's face it, the issue is not tuners but DOCSIS IP.  A number of companies produce silicon tuners, but only 2 (Broadcom, TI/Intel) have DOCSIS 3.0.  For low end (and low margin) products like DTA's, this is fine, but for 2-way interactive set tops, you have to have DOCSIS technolgy to interact with the head end.  I really don't see how this will harm Broadcom, at least for any of the higher margin products like STB chip sets.

pogo 12/5/2012 | 4:24:08 PM
re: Zoran Targets Broadcom With Microtune Buy

The Zoran acquisition of Microtune is directly related to DOCSIS IP, particularly DOCSIS 3.0.  While Broadcom's D3 chips have integrated the wideband tuner, TI still owns ~90% of the D3 CPE market and they rely on the Microtune MT2170 wideband tuner.  To my knowledge, it is the only Si tuner available today with 96 MHz bandpass, enabling a span of 16 QAM channels.  While 16 might seem like overkill, most MSOs don't use contiguous channels for downstream bonding, so the 2170 allows them to use any 4 or 8 out of a 16-channel band.  Until somebody else matches this product, Microtune's 2170 is critical for the majority of D3 modems that use TI/Intel silicon.

As for STBs, today they all use D2 for the back channel, but this will change over time, particularly as MSOs begin the slow transition to IPTV.

Clearly, Intel stood to benefit as much or more from a Microtune acqusition as Zoran did.  Too bad for them that they didn't snap Zoran up as part of their recent acquisition binge.

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