LM Ericsson Telephone Company (ERIC - Analyst Report) recently signed an agreement with Microsoft Corporation (MSFT - Analyst Report) to acquire the latter’s TV solution Mediaroom business for an undisclosed sum. Through this acquisition, Ericsson intends to become the leading provider of IPTV (Internet Protocol TV) and multi-screen solutions.
The deal is expected to be closed by the second half of 2013 and Ericsson plans to include Mediaroom into its Business Unit Support Solutions.
Located at Mountain View, CA, Mediaroom is the leading comprehensive platform for video distribution comprising the world's largest IPTV operators. Its services are offered on various devices including WiFi set top boxes, Xbox 360, personal computers, tablets and Smartphones.
The acquisition of the TV business comes at an opportune time when the global IPTV market is expected to reach 76 million subscribers in the year 2013. Further, the IPTV market is currently expected to generate revenues of $32 billion.
According to the company press release, the IPTV market is expected to have 105 million subscribers with revenue of $45 billion by 2015. Post-acquisition, Ericsson will emerge as the leading provider of IPTV and multi-screen solutions with a market share of more than 25%.
The proposed acquisition is a strategic move by Ericsson as it expects the demand of the TV consumers to grow rapidly, thanks to the swift technological innovations happening worldwide. The company believes that this development will continue to drive the industry. Therefore, such development demands content owners, broadcasters, TV service providers and operators to rethink their propositions.
Furthermore, as per a report given by ABI Research firm, IPTV market share registered 11.5% growth in 2012 as compared with 10% in fiscal 2011. It is believed that IPTV will be the next big thing for the telecom companies. So, investing in the initial phase is expected to give good results going forward.
Recently, Canada-based TELUS Corporation (TU - Analyst Report) received an industry-winning MPEG-4 AVC HD compression technology from Ericsson. The technology will be used in Telus’ IPTV service, called Optik TV.
The comprehensive media solution portfolio of Ericsson in the TV and video category along with an increased focus on consumer needs is expected to be the foundation for providing services to end users of the IPTV market.
Ericsson currently has a Zacks #3 (Neutral) and we prefer to wait and see Ericsson as we see signs of improvement in the company's performance. Other wireless equipment stock worth a look is Interdigital Inc. (IDCC - Snapshot Report) having a Zacks #2 Rank (Buy).