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DSL/vectoring/G.fast

Motorola Gobbles Up Netopia

Expanding its IPTV product portfolio for telco clients, Motorola Inc. (NYSE: MOT) today agreed to acquire Netopia Inc. for $208 million in cash, or $7 per share. The companies hope to close the deal early next year.

The announcement sent Netopia shares skyrocketing, up $1.24 (22.1%) to $6.83. Motorola shares were less exuberant, climbing 51 cents (2.4%) to $21.68.

Motorola, which has been scrambling to strengthen its foothold in the promising IPTV market, will take over a company that churns out wired and wireless DSL modems, routers, and gateways, as well as remote management and support software for telco-related customer premises equipment (CPE). With the planned acquisition of the Silicon Valley firm, Motorola boasts that it "will now offer a full suite of home CPE for copper-based telecom networks -- including home media hubs, voice gateways, and IP set-tops."

Up until now, Motorola could offer IP set-tops, BPON, and GPON to such major telco customers as Verizon Communications Inc. (NYSE: VZ). But the tech giant, a major player in the cable tech field, needed DSL gear and related software to round out its offerings for IPTV, video-on-demand (VOD), and other telco video products.

"This acquisition fills product gaps in Motorola's telco access offering," writes Inder Singh, an analyst with Prudential Equity Group LLC , in a quick, approving note dashed off to investors. "We believe this acquisition will allow Motorola to offer a more competitive IPTV portfolio to telcos, complementing the company's already strong position with cable operators."

A publicly owned company since 1996, Netopia has landed broadband equipment and software contracts around the world with companies including AT&T Inc. (NYSE: T), BellSouth Corp. (NYSE: BLS), Swisscom AG (NYSE: SCM), Covad Communications Inc. , and Irish ILEC eir . In the nine months which ended in June, those five telecom providers accounted for 68 percent of Netopia's $82.3 million in revenues.

If the deal is approved by regulators and Netopia's shareholders, Motorola says it intends to integrate the firm into its Connected Home solutions division, which has been focused largely on the cable broadband business. Plans call for Alan Lefkof, president and CEO of Netopia, to run the enlarged division under the unit's current president, Dan Moloney.

"It'll be much bigger than Netopia," says Lefkof, whose company now employs about 300 people. "It puts the bow tie on their whole division."

With the addition of Netopia, Motorola will compete in the DSL equipment market against such incumbents as 2Wire Inc. , Westell Technologies Inc. (Nasdaq: WSTL), and Thomson S.A. (NYSE: TMS; Euronext Paris: 18453). But of those three rivals, Lefkof notes, only 2Wire also offers remote management software of DSL gear and computers, as well as potentially IPTV set-top boxes.

Several industry analysts praised the deal soon after it was unveiled. In particular, they lauded Motorola for scooping up Netopia before rivals Cisco Systems Inc. (Nasdaq: CSCO) and Netgear Inc. (Nasdaq: NTGR) acted and paying what one analyst called "a relatively bargain price/valuation" for the firm.

"From Motorola's perspective, this acquisition makes perfect sense, as we believe Netopia would otherwise have ended up in Cisco's or Netgear's arms," writes Anton Wahlman, an analyst with ThinkEquity LLC . "Netopia's well-performing portfolio of DSL CPE and TR-69 software is an attractive asset to several would-be acquirers, and to Motorola no less than anyone else."

Speculation of a Netopia buyout had lingered since the summer. (See Is Netopia Buy-Out Bait?.)

Lefkof, who denied having any discussions with Cisco or Netgear, says he expects 2007 to be a big year for telco IPTV deployments, especially in Europe. He's counting on five or six large phone companies across the continent to launch IP video service by next fall, following in the recent footsteps of Swisscom.

Under the new Motorola umbrella, the Netopia chief also sees potential for selling his firm's remote management software to Verizon Communications Inc. (NYSE: VZ) and even cable operators. Although MSOs now have access to some remote management aids through the cable industry's DOCSIS specifications, he argues, his company offers more than DOCSIS can deliver.

Besides announcing the deal with Motorola today, Netopia is releasing its fiscal fourth quarter and year-end results a day ahead of schedule. For the quarter, the firm reported a net loss of $1.5 million on $31.0 million in revenues -- somewhat worse results than it posted in the year-ago period in spite of higher revenues -- as broadband equipment, sales and marketing, and research and development expenses all rose. In its fourth quarter last year, Netopia lost $1.3 million on $23.4 in revenues.

For the full year, Netopia reported a $3.6 million net loss on $113.3 million in revenues. That represents an improvement from fiscal 2005, when the firm lost $7.1 million on $105.8 million in revenues.

— Alan Breznick, Site Editor, Cable Digital News

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