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Motorola Going For Web Video Panacea?

Motorola is betting on the silver lining. After two consecutive quarters of poor financial results and thousands of layoffs, the company augmented its profitable Motorola Connected Home Solutions business by acquiring Terayon Communication Systems for $1.80 per share or approximately $140 million.

Teraycon, Motorola said, creates video processing solutions to optimize bandwidth and enable content to be delivered based on the regional and local interest of viewers.

"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, Motorola Connected Home Solutions, said in a statement.

The integration of Terayon is supposed to provide Motorola the solution to one of the greater challenges in the YouTube age: How to monetize web video? Motorola said Terayon's software will enable such possible solutions as digital ad insertion, motion and graphical overlays and channel branding.

Motorola said the transaction is expected to be neutral to Motorola's earnings per share in the first year following closing.

Considering the poor financials Motorola has reported of late, a neutral outlook is perhaps good news for the company and its employees.

During a January call to report a 2006 fourth quarter income drop of 48 percent, chairman and CEO Ed Zander announced plans to slash 3,500 workers, or five percent of its workforce.

This year hasn't been much better for Motorola. On March 21, 2007 it revised its 2007 first quarter guidance, due to much lower than anticipated sales at the company's Mobile Devices business. The company followed by announcing lower earnings results.

"The performance in our Mobile Devices business in the first quarter is unacceptable. We are committed to restoring it to an appropriate level of profitability," Zander said in a statement.

"Despite challenges, the company was profitable for the quarter, excluding the items highlighted above. We also continue to invest for the future, as evidenced by the completion of several strategic acquisitions during the quarter."

Today's transaction is expected to be completed in the second or third quarter of 2007, Motorola said. Terayon will maintain operations in Santa Clara, California.