Daily Management Review

Cisco's TV Set-Top Business Sale, Relief for One Boon for the Other


07/24/2015




Cisco's TV Set-Top Business Sale, Relief for One Boon for the Other
While its bane for one its boon for the other.

Cisco investors breathed a sigh of relief after it managed to strike a deal and sell off its TV set-top business to Paris-based Technicolor for $600 million.
 
Form the point of view of Cisco investors, this was seen as the biggest mistake that the company had made. Cisco had bought the TV set-top business in 2005, at a time when the company had made its largest acquisition ever by acquiring Scientific-Atlanta for $6.5 billion.
 
This deal came two days before the company’s new CEO Chuck Robbins was to assume office.
 
Investors had been skeptical of the company’s buying the business since the beginning. However the results of the business in recent years had been dismal.
 
2005 was a period when some of the top brass at Cisco had believed the merging of internet and television was the next big thing in entertainment. The merging of internet and television resulted in an interactive world where one would be able to chat on the TV screen with friends while watching a game and the advertisers could send personalized ads.
 
Set-top box is the device that connects the cable connection to the TV at home or elsewhere and Scientific-Atlanta was a leader in TV set-top boxes at the time of the acquisition.
 
The strategy of the company was to merge the TV set-top box business with Linksys WiFi routers, the company’s primary consumer product. The new device thus created would combine voice, video and data.
 
A couple of years earlier in 2013, Cisco had come out of its consumer WiFi router business in 2013 after selling off Linksys to Belkin which was preceded by company selling the Flip video camera business in 2011. Thus for the company, the TV set-top business was simply another loss making business without the revolutionary voice, video and data combination plan.
 
Moreover the service provider video business unit of the company that utilized the set top box business had been bleeding for quite some time. The company revenues for the last quarter form the business declined by 5% while orders declined 20%. In the last quarter of last fiscal the business had declined by 19% and 125 the quarter before. Consequently the set top box business declined a cumulative 20% during the period.
 
On the other hand, the deal is expected to spruce up Technicolor's efforts to expand in the thriving home video market and boost profitability.rhe acquisition would result in the
World No. 2 in customer premises equipment (CPE) to total sales of 3 billion euros ($3.3 billion) and a 15 percent market share.

This would be comparable only to the projected 25% market share that U.S. network gear maker Arris Group and British set-box maker Pace would enjoy after their proposed merger.  
 
"Video is what is driving traffic today," Frederic Rose, CEO of Technicolor said. This demand for video has also created a massive demand for customer premises television equipment, he added.
 
With the acquisition, Technicolor would be able to boost its footprint in North America which is also the largest CPE market in the world. The company is confident of making 57% of its total sales from North America alone after the completion of the acquisition.

The company would then have a portfolio of over 290 million set-top boxes installed in over 100 countries, and generate annual savings of over 100 million euros from 2018, the company said.

(Source: www.reuters.com & www.businessinsider.in)






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