It was not surprising to see that Google sold the Motorola Home Division. It was clear from the outset that it was a bad fit for Google. As you may recall in previous blogs, I had suggested that Google had no expertise in running a hardware business, and it probably had little interest in legacy-type technology. Although official statements to the contrary, the latest announcement and reports in the press essentially confirm my initial assessment.
On balance, I am positive about this deal. The pros:
- Strategically, this acquisition makes sense for Arris because it greatly diversifies its product portfolio and solidifies its presence in Tier 1 MSOs in the Americas.
- There is some product overlap, (for example, CMTS and QAMs), but it is not that significant, especially given that the majority of Motorola’s revenues are derived from STBs.
- Arris has technical expertise and credibility within the industry and has experience with the design, manufacturing and selling of cable hardware.
- Arris diversifies its customer base substantially and reduces its reliance on Comcast and TWC, which are about 50% of total revenues.
- Arris’ management has a good track record and has delivered consistent growth over the last few years.
- The combined company is sufficiently large to compete effectively with Cisco
The concerns to watch are:
- Execution risk: Can Arris effectively swallow a company twice its size? Will it be able to integrate the two companies fast enough to minimize loss of momentum? Will the cultures assimilate?
- Market risk: Will the combine product strategy/portfolio/roadmap meet the market transitions? Will the economic uncertainty continue to put downward pressure on SPs’ CapEx?
- Financial Risk: Will Arris be able to increase Motorola’s historically low margins? Was the price too high?
Personally, I was glad to see Motorola end up in competent hands (the other bidder, Pace, is also a competent player in the space and would have been a good match as well). It was hard to watch the division suffer under the lack of attention, strategic vision and direction provided by Google. While we see this as a positive development, we will not know how it turns out for several years.
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David Dines is principal analyst at ACG Research. For more information, visit www.acgresearch.net/