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updated: 6/7/2013 10:20 AM

TiVo plunges after getting less than predicted in settlement

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TiVo Inc. plunged the most in three years after settling a patent dispute with Google Inc.'s Motorola Mobility unit, Cisco Systems Inc. and Time Warner Cable Inc. for $490 million -- less than analysts had estimated.

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TiVo announced the amount this morning, saying it brought the total from awards and settlements related to the use of TiVo's digital-video-recorder technology to about $1.6 billion. As part of the agreement, Cisco and Google will enter into a patent-licensing deal with TiVo. The San Jose, California-based company also approved a $200 million stock-buyback plan.

Analysts had been projecting a larger settlement, and TiVo had said in an October court filing that it might be entitled to "billions of dollars" from Motorola Mobility, based on the number of television set-top boxes it supplied to Time Warner Cable. In addition to the disappointing dollar figure, the removal of the company's main litigation is spotlighting the challenges of the underlying business, said Andy Hargreaves, an analyst at Pacific Crest Securities in Portland, Oregon.

"It's losing a lot of money," said Hargreaves, who has the equivalent of a hold on the stock.

TiVo shares fell 17 percent to $11.37 at 10:07 a.m. in New York trading. The stock tumbled as much as 19 percent earlier in the session, marking the biggest intraday drop since May 2010. The plunge more than erased TiVo's 8.3 percent gain yesterday when news of the settlement first emerged.

Texas Case

Tony Wible, an analyst at Janney Montgomery Scott in Philadelphia, had projected that Motorola Mobility would have been awarded about $940 million -- assuming six years of damages from Motorola DVRs that TiVo said infringed its patents -- had the case gone to trial next week in Texarkana, Texas, as planned.

Michael Olson, an analyst at Piper Jaffray Cos., projected a $550 million settlement. While he said the company "will continue on a positive trajectory," many investors may feel they have little incentive to continue holding the stock.

"With the catalyst of litigation-related cash infusions coming to a close, some investors may not stick around to see how the fundamental story plays out," Olson said in a note to clients.

The agreement averts a trial and eliminates some final holdouts in TiVo's efforts to get DVR makers to license its technology. TiVo, which created the DVR market only to see competitors grab more customers, has collected more than $1 billion in patent royalties from Dish Network Corp., AT&T Inc. and Verizon Communications Inc. TiVo has waged more than nine years of litigation to get compensation for its inventions.

Time Warner Cable

The trial next week in Texas was going to focus on Motorola Mobility's set-top boxes for Time Warner Cable. A second trial, involving boxes made for Time Warner Cable by Cisco, was scheduled to begin next year. Motorola Mobility also had infringement claims pending against TiVo, with older patents that it said in court filings showed it had been the first to develop DVR technology.

Cisco, based near TiVo in San Jose, said in a regulatory filing that it will be paying $294 million of the total and taking a charge this quarter of 3 cents a share.

Google, based in Mountain View, California, inherited the case when it bought Motorola Mobility last year.

Motorola Mobility is "pleased that all parties involved have reached an agreement to resolve pending litigation," William Moss, a company spokesman, said in an e-mail yesterday.

Arris Group Inc., a cable-equipment maker, is buying Google's Motorola Home business for $2.35 billion. Under terms of the acquisition, Arris would be responsible for no more than $50 million of the liability in any loss to TiVo, according to a May regulatory filing by the Suwanee, Georgia-based company.

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