Google announced on Wednesday it is selling the Motorola Home division to Arris for a eye-poppingly low multiple of less than one, trailing 12 month revenues. That’s an awful valuation, showing that Google didn’t see a whole bunch of growth potential in the business going forward.
So with the onetime kingpin of the cable set top that was once General Instrument being sold for a paltry sum, what does that say for the set-top business in general? With the emergence of over-the-top and the general trend toward embedded connectivity (which I talk about with Anthony Wood of Roku here), the market is clearly transitioning away from discrete boxes. Stacey writes about intelligence moving into the cloud, but that’s a trend that’s been under way for at least five years, with companies in the VOD space and pay TV more broadly actively migrating more of the intelligence into the network and away from the discrete consumer box.
An interesting company to look at in the context of today’s news is Netgear, which is the largest publicly traded consumer network gear company. Netgear is currently trading at a 16 PE ratio and has nearly a $1.5 billion valuation, despite revenues coming in about half that of Motorola Home.
What this tells me is the market may value companies that have more-direct relationships with consumers at retail over those operating exclusively in the carrier channel (as Motorola Home did). It should also be noted that Netgear probably benefits slightly from its small and medium business line, where there are less headwinds, at least immediately, coming from the embedded networking trend.
Now all eyes will turn to Cisco and Linksys. Again, the market valuation for consumer gear companies in the age of embedded intelligence and cloud is dropping, but I would not be surprised if Linksys gets a valuation somewhere midway between Motorola Home and Netgear. What will be most interesting to me is to see if it will package Linksys and its set-top business together. I think it could conceivably sell the pair together and probably would be wise to if it is looking to truly get back to its enterprise roots (as Chambers and the company has said they want to do).