[opendtv] News: Cisco Set to Enter Cable Field
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Fri, 18 Nov 2005 09:21:04 -0500
This could be VERY BIG news in terms of the recent discussions we
have had about in-home networking for digital media and the whole
concept of home gateway devices with multiple tuners, NICs etc.
Regards
Craig
Cisco Set to Enter Cable Field
By MATT RICHTEL and KEN BELSON
Published: November 18, 2005
Cisco Systems Inc., the Internet equipment provider, plans to
announce the acquisition of Scientific-Atlanta, a maker of television
set-top boxes, for $7 billion according to people who have been
briefed on the negotiations.
These people said the deal, one of the largest acquisitions ever for
Cisco, was approved by the boards of both companies after the close
of the stock market yesterday.
The final price is expected to be around $5.3 billion because Cisco
expects to acquire a cash balance of approximately $1.7 billion from
Scientific-Atlanta.
In the last month, Scientific-Atlanta's stock has surged 26 percent
on speculation that the company would be bought. Those gains have
pushed the company's market capitalization to $6.4 billion.
Scientific-Atlanta's stock rose $1.15, or 2.9 percent, to $41.45
yesterday. Cisco's shares rose 15 cents, to $17.37.
Sara Stutzenstein, a Scientific-Atlanta spokeswoman, said she was
unable to comment on speculation about a deal. Terry Anderson, a
spokeswoman for Cisco, also declined to comment.
The news highlights a desire by equipment makers to take advantage of
the growing convergence of Internet technology, telecommunications
and entertainment.
With the deal, Cisco will, for the first time, be able to sell
digital television equipment that provides high-definition
programming; shows and movies on demand; and an array of interactive
services. Scientific-Atlanta, the second-largest provider of these
set-top boxes, and Motorola, the largest, have effectively held a
duopoly in this market.
Both Scientific-Atlanta and Motorola have long supplied set-top boxes
to cable operators like Comcast and Time Warner Cable. The boxes,
though long viewed as stodgy decoders of encrypted television
signals, have become far more sophisticated in recent years.
Scientific-Atlanta and Motorola now produce boxes that receive
high-definition programs and include digital video recorders; soon
they will include DVD recorders as well.
Cisco is envisioning a future that includes home entertainment
systems built around a set-top box that communicates with not only
the television, but also with audio equipment and a range of
appliances. Cisco also sees potential growth in services that store
television programming on giant servers for delivery to consumers on
demand.
Scientific-Atlanta is also likely to benefit from a requirement that
broadcasters return their analog spectrum to the government in 2009.
By then, hundreds of millions of American televisions will need the
equipment to receive digital signals.
"One of the nice things about set-top boxes is that they are
constantly being overhauled," said Bruce Leichtman, president of the
Leichtman Research Group, which tracks the telecommunications and
cable industries. "The cycle never ends."
A purchase of Scientific-Atlanta would be a coming-out party of sorts
for Cisco as a more consumer-oriented company. The company has been
best known for equipment that routes data around the Internet. These
so-called routers have turned Cisco, with $24 billion in annual
sales, into a bellwether stock.
Cisco made its biggest push into the retail market so far in 2003,
when it acquired Linksys, a big maker of Internet routers for the
home, for $500 million.
Still, any deal carries considerable risk for Cisco shareholders. The
question of how digital equipment will merge with digital
entertainment remains up in the air. As a result, there is no
assurance that Scientific-Atlanta can retain its dominant position in
the set-top box market.
Scientific-Atlanta, based in Lawrenceville, Ga., has 6,500 employees
and $1.9 billion in annual revenue. Almost all its profit comes from
sales of set-top boxes and related equipment. Cisco, which is based
in San Jose, Calif., has 34,000 employees.
The deal ends a great deal of speculation about Scientific-Atlanta's
future. The company's president, James F. McDonald, is said to be
nearing retirement, and the company, which has ample cash, has
largely avoided any acquisitions.
People briefed on the negotiations said Scientific-Atlanta would
retain its current management.
Private Capital Management, run by Bruce S. Sherman, is
Scientific-Atlanta's largest shareholder, with 18.2 million shares,
or an 11.8 percent stake.
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