Google, of Mountain View, Calif., said it will sell the business called Motorola Home to Arris, of Suwannee, Ga., for $2.35 billion, including $2.05 billion in cash and $300 million worth of Arris shares, which leaves the No. 1 search engine as the owner of around 16 percent of Arris.
In May, Google paid $12.5 billion in cash for all of the former Motorola Mobility, which came with the Motorola Droid and other smartphones, plus more than 17,000 patents, as well as the set-top box business. So it's exited a business that requires extensive manufacturing.
Arris already designs many of the sophisticated servers for cable systems. It makes possible the “localization” of cable TV advertisements and helps consumers use in-home functions like ordering pay-per-view movies.
“The transformational value of two complementary businesses will create a leading end-to-end provider of today's video, data and voice products,” said Arris CEO Bob Stanzione. It should also help with next-generation Internet-protocol products, he added.
Stanzione, who came out of AT&T (NYSE:T) to run Arris, has built Arris up so that it's now far bigger than independent rival Harmonic (NASDAQ: HLIT).
Indeed, shares of Arris jumped more than 9 percent in early Thursday trading to $15.90, before easing back to $15.31, up 77 cents, boosting the company's value to $1.74 billion. Often, shares of an acquiring company fall after an acquisition.
Shares of Harmonic, of San Jose, Calif., fell slightly to $4.97, suggesting it may need to make its own deal now. Harmonic's market value is around $580 million.
Meanwhile, shares of Cisco fell 4 cents to $20.23. This month, Cisco CEO John Chambers said the company will adopt a more software-defined future path.
Still, cable TV and services are huge in the U.S. and worldwide. Under their new partnership, Arris and Google say they will be active in 70 countries with more than 500 cable TV customers. That's a big challenge for Cisco, which got into cable TV when it acquired Scientific-Atlanta in 2006 for $6.9 billion.
In the cloud, interconnected services will still be king, although there's now major competition from services from Apple (NASDAQ:AAPL) with iCloud, Amazon Prime from Amazon.com (NASDAQ:AMZN) and tablet users.
Microsoft (NASDAQ:MSFT) is now the leader in PC voice telephony thanks to its 2011 acquisition of Skype.
For now, though, the legacy market in millions of households looks like a ripe opportunity.
As well, by shedding at least part of its business, Google may win favor from regulators in Washington and Brussels known to be exploring antitrust and other charges against it due to its dominance of search.
Over the past two days, reports have said the U.S. Federal Trade Commission may postpone any action against Google until sometime in 2013.
Shares of Google rose $3.37 to $723.28 in Thursday trading.