For a company the size of Motorola
Founded in 1986, Netopia is a developer of high-end networking equipment, such as modems and routers. Basically, these technologies allow customers to provide high-speed Internet access using DSL (digital subscriber line), which uses copper lines for its transmission.
And Netopia has been growing at a healthy clip. For example, in the fiscal fourth quarter, sales increased from $23.4 million to $31 million. However, the company is still not profitable, with a net loss of $1.5 million in the quarter.
Yes, DSL is a mature business. But Netopia is getting a boost from an emerging trend: the digital home. That is, telcos are upgrading their networks to provide more services, such as video. And that means having next-generation equipment, as well as software. Basically, this is the sweet spot for Netopia.
It's true that Motorola already has impressive video technologies. It's a leader in the cable industry, but not in the telecom sector. In fact, it's very difficult to land these types of customers.
And that's why the purchase of Netopia makes a lot of sense -- because of its stellar list of telco customers, giants such as AT&T
As for the valuation, Motorola is paying roughly 1.6 times trailing revenues, assuming you exclude the cash on the company's balance sheet. That's a pretty good price, considering what Motorola gets: cutting-edge technologies, a top-notch customer base, and improved chances in benefiting from the digital-home boom.
Yes, in a way, this small deal could wind up being a big thing for Motorola.
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