Motorola said Monday that it will pay $140 million in cash to buy Terayon Communication Systems, a supplier of digital television software and equipment.
Motorola will acquire all of the outstanding shares of Terayon's common stock for $1.80 per share in cash.
Terayon's equipment is used by cable, satellite and phone companies offering TV service to help manage their video networks. It optimizes the use of bandwidth and allows video to be delivered based upon the regional and local interest of viewers. Specifically, the Terayon products will help service providers insert more local advertising into their video content. The ability to tailor advertising to a given customer population could open new revenue streams for these service providers.
Motorola already offers some video infrastructure equipment, and it's the No. 1 seller of set-top boxes to cable operators. But the company believes the integration of Terayon's software and hardware products will help it offer a more attractive end-to-end video processing solution.
"The acquisition of Terayon will enhance Motorola's end-to-end portfolio for the delivery of next-generation services such as targeted advertising and program insertion solutions," Dan Moloney, president of Motorola Connected Home Solutions, said in a statement.
The acquisition is expected to close by the third quarter of this year, according to Motorola. Once it is completed, Terayon will become a wholly owned subsidiary of Motorola. The Terayon division will maintain operations in Santa Clara, Calif., the company said.
The Terayon deal is part of a larger Motorola strategy to diversify its business. The bulk of Motorola's revenue today still comes from its mobile handset division. But in the last several quarters, the company's earnings have come under severe pressure as the company sacrificed profitability for market share, flooding the market with cheap handsets. As a result, the company has turned its popular Razr phone into a mass-market device with a continually declining price tag every quarter.
Last week, the company reported disappointing earnings again. In the first quarter of 2007, Motorola reported a loss of $181 million compared with profits of $686 million for the same quarter a year earlier. Sales for the company fell to $9.43 billion, down about 1.8 percent. The company expects its second-quarter revenue to be essentially flat compared with results from the first quarter.
Still, Motorola executives believe the company can turn a profit in 2007, a goal that some analysts say will be difficult to achieve. The recent turmoil has spurred billionaire, activist investor Carl Icahn to bid for a seat on the company's board. He believes Motorola needs to use its cash to buy back more shares of the company instead of using it for acquisitions. Motorola has urged investors not to vote for Icahn.