Takeover Time for Encoding?
Cable Guy Alan Breznick, Cable/Video Practice Leader, Light Reading 3/9/2007
Anton Wahlman of ThinkEquity LLC , who loves to forecast tech M&A deals, believes that Ericsson's $1.4 billion bid for Tandberg TV will spur "a new urge to vertically integrate" in the traditionally fractionalized video encoding sector as the big tech vendors decide that it's better to have an encoding solution in-house. In a recent research note, he argues that such other telecom equipment giants as Alcatel-Lucent (NYSE: ALU), Nokia Networks , Nortel Networks Ltd. , Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), UTStarcom Inc. (Nasdaq: UTSI), Huawei Technologies Co. Ltd. , and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) may all pile into the encoding space now that Ericsson has made its move -- similarly to what's already happening in the video-on-demand (VOD) server business.
Nor does Wahlman rule out additional acquisitions by Motorola Inc. (NYSE: MOT), which is now in the hunt for Terayon Communication Systems Inc. with Cisco Systems Inc. (Nasdaq: CSCO) and Harmonic Inc. (Nasdaq: HLIT). He also expects Arris Group Inc. (Nasdaq: ARRS), the loser to Ericsson in the Tandberg TV battle, to chase other encoding specialists once the dust settles.
"Our conclusion is that it is at least 50/50 that the Ericsson move may be the first of several major scrambles by the larger systems integrators to add this piece of the IPTV puzzle to their in-house capabilities," he writes. "If this happens, it could be nothing short of the equivalent of Microsoft Corp. (Nasdaq: MSFT) acquiring Dell Technologies (Nasdaq: DELL) and potentially refusing to sell its operating system to Gateway Inc. , Sony Corp. (NYSE: SNE), Toshiba Corp. (Tokyo: 6502), and others."
So whom does Wahlman see as takeover targets for the big guys? Take your pick. In his note, he lists just about every firm with encoding or related technologies on the planet, including such publicly owned companies as granddaddy Harmonic, Terayon, Scopus Video Networks (Nasdaq: SCOP), and Optibase Ltd. (Nasdaq: OBAS). Among privately owned firms, he cites Modulus Video Inc. , EGT Inc. , RGB Networks Inc. , and one other mysterious company that he declines to name.
— Alan Breznick, Site Editor, Cable Digital News