Motorola's Netopia Acquisition Reduces Its Microsoft Dependence

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Includes: GOOG, NTPA
by: Davis Freeberg

No sooner do I publish speculation on which middleware company Motorola was interested in acquiring, when they come out and announce that they’ve agreed to buyout Netopia for $208 million in cash.

While Netopia (NTPA) wasn’t included on the list of companies that I profiled, the acquisition makes a ton of sense and will certainly bolster Motorola’s IPTV portfolio. By intergrating Netopia’s telco experience into Motorola’s set top boxes, it should allow the company to offer a much more compelling IPTV solution to their telephone partners.

Deep down inside, Netopia is really more of a DSL router provider then a pure middleware play, but last year the company unveiled their MiAVo triple-play gateway, which is a customized video, telephone and internet solution specifically designed for DSL providers to use.

In looking at the number, Netopia has earned approximately $105 million in revenue over the last 12 months. They did lose approximately $3.5 million during that same time, but recently, their earnings had been picking up and over the last six months, they did squeek out a modest profit. With a little over $30 million in assets on their balance sheet, Motorola may have gotten a very good deal by purchasing the company for slightly less then two times their trailing 12 month sales, particularly if the acquisition leads to more IPTV agreements.

Over the last few years, Wall St. has been less then kind to Netopia’s stock. After it hit a high of $18.68 at the beginning of 2004, the company’s stock went into freefall mode and hit a low of $2.90 later that year. After moving from the pink sheets to the over the counter bulletin boards, the company recently went prime time and was able to get listed on the Nasdaq. Since then they’ve seen a modest appreciation on their stock price, but with Netopia facing a less then certain market for their IPTV services and a volatile market capitalization, they may have welcomed the opportunity to be absorbed by a deep pocket partner.

The transaction is expected to close in early 2007 and with the acquisition, Motorola will convert Netopia’s Emeryville office into their voice and data customer premise headquarters.

Netopia certainly fills in a piece of Motorola’s IPTV puzzle, but is not necessarily an ideal cable middleware solution for the company. While it’s entirely possible that Motorola may have more acquisitions lined up in the middleware space, at the very minimum the Netopia acquisition should help Motorola to reduce their dependence on Microsoft.

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