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Google Faces a Big Set-Top Overhang With Expected Sale of Moto Home

8/13/2012 4:38 PM

After Google is done hacking Motorola Mobility’s headcount by 20%, what’s next for the latter’s Home division? (See Google To Slash 4,000 Motorola Jobs.)

The Internet giant is expected to shop Motorola Home — which houses set-tops, DVRs, cable modems and other service provider product lines — to the highest bidder, as Light Reading Cable’s Jeff Baumgartner reported last week.

Sometime in September, Google will “bring the asset to a very limited subset” of potential buyers, according to a source in the investment community: “Google wants to get rid of it.” Barclays Capital is said to be handling the sale process, the source said, corroborating LR Cable’s report.

Who might be taking a look at the books? Large network infrastructure players like Ericsson, Juniper Networks, Huawei and ZTE might be in the mix, according to this source, as well as private-equity firms. (However, the two Chinese vendors — Huawei and ZTE — are seen as unlikely suitors given Google’s fraught relationship with the country, the source said.) Smaller cable-tech firms, like Arris, would need to team up with a PE firm, resulting in a more complex (and therefore less likely to be consummated) deal, the source added.

Cisco Systems, the other half of the so-called cable technology “duopoly,” would not be part of the Moto Home bidding because of antitrust concerns. Plus, Cisco has plenty of work cut out for itself in sorting through the $5 billion NDS acquisition, which officially closed July 31.

As for the asking price, Google probably would be seeking in the range of $1.5 billion to “the mid-to-high 2’s” for Home, the source said — but would be very challenged to get the high end of that range.

That’s because every prospective buyer will be considering the health of Motorola’s set-top business over the next five years. With cable moving toward IPTV and cloud-based video services like network DVR, set-top and DVR sales could collapse: “That’s a very real limiter on the price Google can get” for the Home business, the source said.

Motorola set-top revenue dropped 3% in 2011, as the average selling price of STBs declined, even though unit shipments were up 6%, according to the company’s final 10-K. The Home business generated revenue of $3.5 billion in 2011, down 3% from the year prior, with operating earnings of $226 million (vs. $152 million in 2010).

Note that Google attributed $730 million of the Motorola purchase price to “customer relationships,” whereas the patent portfolio was worth $5.5 billion in the Googlers’ eyes (see Google Breaks Down $12.4 Billion Motorola Price Tag).

Whatever happens next, you can bet competitors like Cisco, Arris and Pace will be talking up the layoffs and potential Home sale. Cisco CEO John Chambers already boasted to Wall Street last fall that Google’s takeout of Moto was a blessing (see Cisco’s Chambers: ‘We Got Very Lucky That Motorola Got Purchased By Google’).

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