Light Reading

Cisco Backs Away From 'Low-Margin' STB Deals

Jeff Baumgartner
LR Cable News Analysis
Jeff Baumgartner
2/14/2013
50%
50%

Welcome to today's cable and broadband news roundup.

  • Cisco Systems Inc. still loves set-tops, but apparently just the most profitable ones. Cisco is "walking away" from potential deals involving lower-margin boxes, a class that presumably includes IP clients, company Chairman and CEO John Chambers said on Wednesday's second-quarter call. [Ed. note: We've asked Cisco to clarify.] "We have been more selective in the business … in terms of set-top boxes, and the lowest margin boxes in particular," Chambers said. "If it's purely a bid that is on very poor margins, we're not even going to bid." Cisco is emphasizing this strategy in Europe, and that was reflective in the second-quarter numbers, as revenues for the EMEA (Europe, the Middle East and Africa) region reached US$3.09 billion, down from $3.2 billion in the year-ago quarter. The shift comes about a year after Cisco defused rumors that it might try to sell its set-top business. Wednesday's revelation likely means Cisco will apply focus on higher-end devices, such as multi-service gateways, that share content with IP devices on the home network and rely on cloud-based apps and user interfaces. Driven by its integration of NDS, Cisco is "evolving from low-margin set-top box business to more of a profitable and strategic Videoscape architecture in the cloud," Chambers said. (See Cisco: 'We Love Set-Top Boxes'.)
  • High-end gateways are central to the plan at Liberty Global Inc., which is using NDS (Cisco) as a key vendor partner for its Horizon TV platform. Liberty Global President and CEO Michael Fries said on the company's fourth-quarter call that the operator has sold more than 100,000 Horizon TV subscriptions in the five months since its launch. The operator has introduced Horizon TV in the Netherlands and Switzerland, with Germany and Ireland coming online later this year. But Horizon TV has yet to put a stopper in video sub losses -- Liberty Global still shed 28,000 video customers in the period. (See Liberty Global Embarks on New TV Horizon.)
  • Expect M&A action in cable's Tier 2 circuit to stay hot: Private equity firm GTCR has struck a deal to buy NewWave Communications from Pamlico Capital for an undisclosed sum. GTCR is completing the deal in partnership with Rural Broadband Investments, a company formed last year aimed at acquiring broadband networks in small and mid-sized markets. NewWave serves about 90,000 customers and passes 250,000 homes in rural parts of Illinois, Indiana, Missouri and Arkansas. And NewWave is just the start. RBI said the deal will be the first in a series of buys as it looks to acquire systems that, in total, will serve 300,000 to 400,000 cable subs.
  • DirecTV Group Inc. fourth-quarter net income rose 31 percent, to $942 million, thanks in part to a $111 million pre-tax gain tied to the sale of its 18 percent stake in the Game Show Network. Subscription growth helped to drive revenues up 8 percent, to $8.05 billion. DirecTV added nearly 761,000 net subscribers (including a record 658,000 in Latin America) in the period, extending its worldwide total to 35 million.
  • The Federal Communications Commission (FCC) isn't laughing at an emergency alert system (EAS) hack that issued a warning of an imminent zombie attack. In the wake of the hoax, the FCC is urging TV stations and cable operators to shore up the defenses of their EAS systems, including the resetting of default passwords, reports Multichannel News. The EAS hoax spread to several local TV stations, including KRTV (CBS) in Great Falls, Mont.; WBUP-WBKP (ABC) and WNMU (PBS) in Marquette, Miss.; and KENW in Portales, N.M. (PBS), according to this this roundup. Here's a sample of what the fuss was about: — Jeff Baumgartner, Site Editor, Light Reading Cable



    (6)  | 
    Comment  | 
    Print  | 
  • Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
    jtombes
    50%
    50%
    jtombes,
    User Rank: Light Beer
    2/15/2013 | 10:38:45 PM
    re: Cisco Backs Away From 'Low-Margin' STB Deals
    Since you referred to a cross-industry trend: Maybe Amazon is a stellar counter example to the low-margin fad? Yet some bears (shorting AMZN) fear it is what happens when you get trapped in a deceptively attractive low-margin box. A mixed menu sounds prudent. "Would you like a million instances of some relatively higher margin EC2 to go along with that box of give-away Kindles?"
    jtombes
    50%
    50%
    jtombes,
    User Rank: Light Beer
    2/15/2013 | 9:12:28 PM
    re: Cisco Backs Away From 'Low-Margin' STB Deals
    And Huawei? Never know when they may show up. They impacted pricing on DTAs, for instance.
    mendyk
    50%
    50%
    mendyk,
    User Rank: Light Sabre
    2/14/2013 | 10:16:09 PM
    re: Cisco Backs Away From 'Low-Margin' STB Deals
    The obsession with higher margins is a fad that cuts across a number of industries. It plays to the idea that organizations should be managed to their share price rather than to their long-term well-being. Taken to its illogical conclusion, a company like McDonalds would stop selling burgers and just focus on drinks. Margins would shoot up .... for a while.
    gregwhelan
    50%
    50%
    gregwhelan,
    User Rank: Lightning
    2/14/2013 | 7:22:25 PM
    re: Cisco Backs Away From 'Low-Margin' STB Deals
    The problem with a "high end" only strategy is the low end vendors will be getting Million unit pricing for semi-conductors and the high end vendor will be getting 100k unit pricing. -áSince there are many common components the low end will be able sell "high end" STBs at lower prices with higher margin. -áThus a high end only strategy is unsustainable and a sure path to market irrelevance. -áThe argument that STB are commodities at the HW level anyway only makes sense in the short term. -áThe SW equivalent of Moore's Law, i.e., SW gets better with every release, -áwill mitigate any software advantage over time.-á
    craigleddy
    50%
    50%
    craigleddy,
    User Rank: Blogger
    2/14/2013 | 6:25:06 PM
    re: Cisco Backs Away From 'Low-Margin' STB Deals
    How can you talk about set-top boxes at a time like this, when a zombie attack is imminent? I'm gonna go git my shotgun.-á

    You gotta love hackers with a sense of humor. -á
    Jeff Baumgartner
    50%
    50%
    Jeff Baumgartner,
    User Rank: Light Beer
    2/14/2013 | 4:41:07 PM
    re: Cisco Backs Away From 'Low-Margin' STB Deals
    Although Europe appears to be the focus of this shift in focus, it would appear that Cisco will be conceding the market for devices like the Comcast Xi3 to the likes of Pace, Humax and the other vendors that decide to jump in for those potentially high-volume but low-margin HD IP-only client boxes. JB-á
    From The Founder
    Against the odds, Huawei is growing its telecoms networking equipment business in the US -- that should be ringing some alarm bells for domestic vendors.
    Flash Poll
    Live Streaming Video
    CLOUD / MANAGED SERVICES: Prepping Ethernet for the Cloud
    Moderator: Ray LeMaistre Panelists: Jeremy Bye, Leonard Sheahan
    Between the CEOs
    CEO Chat With Jeff Miller, ActiveVideo

    8|28|15   |   19:05   |   (0) comments


    Jeff Miller, President and CEO of ActiveVideo, talks to Light Reading founder and CEO Steve Saunders about the impact of virtualization on the TV and video distribution market.
    LRTV Huawei Video Resource Center
    Vodafone: Mobile Money Is About Customer Trust

    8|27|15   |   06.36   |   (0) comments


    Light Reading spoke with Vodafone's Ian Ravenscroft about the unique responsibilities and opportunities facing operators handling customers' financial transactions over the network.
    Telecom Innovators Video Showcase
    Palo Alto Networks on Expanding in the Carrier/Service Provider Market

    8|26|15   |   07:54   |   (0) comments


    Alfred Lee from Palo Alto Networks tells Steve Saunders about their new chassis-based system, the PA-7080, and how it can benefit service providers compared to legacy firewalls.
    LRTV Custom TV
    Global Services Forum Preview

    8|25|15   |   02:36   |   (0) comments


    Light Reading's CEO and Founder Steve Saunders talks about Huawei's upcoming Global Services Forum with the help of Heavy Reading's Patrick Donegan and Teresa Mastrangelo.
    Telecom Innovators Video Showcase
    Infoblox on DNS Threat Index

    8|19|15   |   04:39   |   (0) comments


    Dilip Pillaipakam from Infoblox talks to Steve Saunders about his company's core network services.
    Between the CEOs
    CEO Chat With Ihab Tarazi, Equinix

    8|14|15   |   20:18   |   (1) comment


    Equinix CTO Ihab Tarazi talks to Light Reading founder and CEO Steve Saunders about the dramatic changes in the data center, cloud and interconnect markets and discusses the impact of SDN and NFV in the coming years.
    Telecom Innovators Video Showcase
    The Netformx Ecosystem

    8|14|15   |   09:39   |   (1) comment


    Ittai Bareket, CEO of Netformx, talks with Steve Saunders about the Netformx Ecosystem, which employs cutting-edge prescriptive analytics to help solution providers maximize profits.
    Telecom Innovators Video Showcase
    Versa Networks on Leveraging VNFs

    8|12|15   |   07:37   |   (0) comments


    Kumar Mehta, founder and CEO of stealth mode startup Versa Networks, talks with Steve Saunders about how providers can best leverage virtualized network functions (VNFs).
    LRTV Custom TV
    Transforming the Network Through OPNFV

    8|5|15   |   7:09   |   (0) comments


    Sandra Rivera, VP Data Center Group; GM Network Platforms Group, Intel Corporation, on OPNFV Arno and how the industry is coming together to accelerate the deployment of NFV and transform the network.
    LRTV Huawei Video Resource Center
    Huawei ONS Product Demo

    8|3|15   |   6:01   |   (0) comments


    Huawei shows at Open Networking Summit 2015 in Santa Clara how its SDN and NFV solutions embrace openness.
    LRTV Custom TV
    End-User or Enterprise Benefits to the New IP

    7|30|15   |   04:27   |   (1) comment


    Andrew Coward discusses what the New IP means to end users or enterprise customers. He explains compelling reasons, including how every customer can get their own network, from the transformation to the New IP.
    LRTV Custom TV
    Network Visibility & the New IP

    7|30|15   |   02:23   |   (0) comments


    Mukund Srigopal provides an explanation of what network visibility is and how it is essential as service providers transition to the New IP. In addition, the importance of the network packet broker is discussed.
    Upcoming Live Events
    September 16-17, 2015, The Westin Galleria Dallas, Dallas, TX
    September 16, 2015, The Westin Galleria Dallas, Dallas, TX
    September 16, 2015, The Westin Galleria Dallas, Dallas, TX
    September 29-30, 2015, The Westin Grand Müchen, Munich, Germany
    October 14-15, 2015, New Orleans Ernest N. Morial Convention Center, New Orleans, LA
    November 5, 2015, Hilton Santa Clara, Santa Clara, CA
    November 17, 2015, Santa Clara, California
    December 1, 2015, The Westin Times Square, New York City
    December 2, 2015, The Westin Times Square, New York City
    All Upcoming Live Events
    Infographics
    Cisco's cloud and virtualization portfolio can increase business agility and innovation by building a more flexible network architecture.
    Hot Topics
    Verizon Hums a Driving Tune
    Sarah Thomas, Editorial Operations Director, 8/26/2015
    Gogo Approved to Speed Up In-Flight WiFi
    Sarah Thomas, Editorial Operations Director, 8/24/2015
    Could Market Volatility Hurt Tech IPOs?
    Dan Jones, Mobile Editor, 8/24/2015
    Sprint's Claure: '3 to 5 Years' to Turnaround
    Dan Jones, Mobile Editor, 8/25/2015
    Like Us on Facebook
    Twitter Feed
    September 22, 2015
    Media Begins With “Me”
    Webinar Archive
    BETWEEN THE CEOs - Executive Interviews
    Jeff Miller, President and CEO of ActiveVideo, talks to Light Reading founder and CEO Steve Saunders about the impact of virtualization on the TV and video distribution market.
    Equinix CTO Ihab Tarazi talks to Light Reading founder and CEO Steve Saunders about data center, cloud and the impact of virtualization in the coming years.
    Cats with Phones
    Cats Are a Smartphone's Best Friend Click Here
    Whoever said cats didn't live to please their humans?