Feature Article

December 20, 2012

Google Quickly Finds a Buyer for its Motorola Set Top Box Biz

Well it certainly didn't take long for a buyer to emerge for Motorola Mobility's set top box business. Cable-equipment maker Arris Group and Google have reached an agreement for Arris to acquire the business in a cash-and-stock deal valued that the companies value at about $2.35 billion.

Google has been shopping the unit through a proposal process for about six weeks or so. That Google would find a buyer was never an issue and the move has been expected more or less since the day Google announced the original Moto purchase. Google bought Motorola Mobility for $12.5 billion back in May 2012.

With regard to the deal itself, Google will receive $2.05 billion in cash and about $300 million in Arris stock, representing an ownership stake of about 15.7 percent after the deal's closing, which is expected by the second quarter. Arris notes that the acquisition is expected to lead to $100 million to $125 million in annual cost synergies. Arris also says that the deal should add significantly to Arris's per-share earnings in the first year after the deal closes.

"Ever-expanding consumer demand for bandwidth will continue to drive growth across cloud and network technologies we provide that enable innovative home entertainment products and services," says Arris chairman and CEO Bob Stanzione. It's good to know that some part of Motorola will continue to live, even if under a different brand.

Making Motorola a part of Google did not immediately turned Motorola's declining fortunes around. Moto continues to struggle relative to its smartphone business, and so far we have not seen anything from Google in terms of new and cool mobile devices that suggest Motorola will play an integral part in Google delivering its own in-house hardware. Google has continued to downsize the Moto operation, most recently shutting down its South Korean operation and noting that it will cut as many as 4,000 positions - about 20 percent of Moto's workforce. The deteriorating financial conditions continue to worry investors and Google needs to stabilize it.

The set top box business was never part of Google's Motorola plans and that it was able to recover $2.35 billion (ironically a decent Motorola business) makes the deal somewhat better for Google. But what about the mobile devices? We certainly anticipated Google making some effort here.

The fact that we have yet to see any evidence whatsoever that Google will drive an aggressive hardware effort out of Moto is interesting. It may yet change, but we have seen no evidence that suggests it will as of yet. Many of us believe that Google really only acquired Motorola for its patent portfolio - which many of us believe was vastly overpriced at $12.5 billion. With the sale of the set top business the outlay now becomes "only" $10.15 billion, but that is still an enormous sum to have shelled out for the patent portfolio.

It remains to be seen just how useful the portfolio will prove to be as Google continues to face patent issues with Android, or if we will see any cool Google-branded and Google-built mobile devices emerge that significantly change the hardware landscape beyond the now already aging "Droid" devices Motorola continues to put in the field.

Edited by Brooke Neuman

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