Light Reading

Cisco: 'We Love Set-Top Boxes'

Jeff Baumgartner
LR Cable News Analysis
Jeff Baumgartner
2/21/2012
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Cisco Systems Inc. (Nasdaq: CSCO) is committed to the set-top box business, and don't let anyone tell you any different.

That was the crux of a message Cisco released Monday as it looks to defuse a rumor that the company is trying to unload its set-top box business. The New York Post reported on Sunday that private equity firms are among the most likely suitors for Cisco's STB business. (See Cisco Puts STB Unit Up for Sale.)

The company told Light Reading Cable that Cisco doesn't "comment on rumors or speculation," but company Director of Corporate Communications John Earnhardt went a step further on Monday afternoon by addressing the speculation in a blog post.

"Let me be as clear as I can: we love set top boxes," Earnhardt wrote.

He backed that up by reminding everyone that Cisco Chairman and CEO John Chambers, on the company's recent second-quarter earnings call, stated: "In terms of set-top boxes, we are very much committed to this marketplace."

"I hope that this clarifies any erroneous, un-sourced comments that might be out there in the marketplace," Earnhard wrote, allowing that Cisco's service provider customers have asked the company to help them migrate from "traditional" set-tops to IP set-top boxes that tie into Cisco's multi-screen Videoscape platform. Cisco, by the way, sold its set-top plant in Juarez, Mexico, to Taiwan-based Foxconn Technology Group last summer as part of a broader cost-cutting effort. (See Foxconn Buys Cisco's Set-Top Factory .)

In some ways, Videoscape does de-emphasize traditional set-top box hardware, because it's increasingly reliant on cloud-based delivery systems and software-based clients that can emulate that functionality in IP-connected TVs, tablets and smartphones. In fact, Cisco's been buying companies to help fill in some technology gaps in the Videoscape platform. (See The Disappearing Set-Top , Cisco to Buy BNI Video for $99M and Cisco's Videoscape Stresses Cloud Control.)

However, the New York Post isn't the only one that's buying into the rumor that something is afoot at its STB division. An industry source familiar with Cisco's plans told Light Reading Cable that it's his understanding that the vendor is "shopping it selectively," but did not say if that interest was for the whole STB division or limited to only its legacy, pre-Videoscape set-top products.

Even if Cisco stays in the set-top box game, the business is less lucrative than it used to be. Among recent examples, sources say Samsung Corp. , which competes with Cisco at key accounts such as Time Warner Cable Inc. (NYSE: TWC), Bright House Networks and Cablevision Systems Corp. (NYSE: CVC), has been particularly aggressive with a pricing strategy that has been causing set-top box margins to shrink. (See Samsung Boxes Break In at Cablevision .)

And that market is becoming increasingly competitive. The world's top set-top maker, Pace plc , for example, has been making strides in the U.S. market, scoring a deal to make a video gateway that will power Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s next-gen "X1" video product. (See Comcast IDs Cloud TV Product as 'X1' and Comcast to Swing Xcalibur Wide in 2012.)

— Jeff Baumgartner, Site Editor, Light Reading Cable

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Jeff Baumgartner
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Jeff Baumgartner,
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12/5/2012 | 5:42:07 PM
re: Cisco: 'We Love Set-Top Boxes'


True, it can still *love* set-tops even if the company ultimately decides to sell the unit to someone else.  It may love to see someone else deal with that tough part of the SP video business. Also, saying they are committed to the STB market isn't a denial that it's seeking a sale. They'll want to make sure that Videoscape supports all forms of STBs, whether that box is sold and made by Cisco or another vendor of the SP's choosing. JB




 
btierney
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btierney,
User Rank: Light Beer
12/5/2012 | 5:42:07 PM
re: Cisco: 'We Love Set-Top Boxes'


Well stated.  While Videoscape is good marketing, I'd like to see a bit more meat on the bone.  The STB business has been a custom one for decades.  Efforts to move it to retail have failed for many reasons such as each Video provider has custom features.


I can't believe Cisco will keep them as they are poor and getting poorer margins.  As a buyer, I still don't quite see any synergy at the street level with San Jose and Lawrenceville.  Alas, a missed opportunity that I'm afraid the window has closed.

DCITDave
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DCITDave,
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12/5/2012 | 5:42:07 PM
re: Cisco: 'We Love Set-Top Boxes'


Usually a sentence that starts like that means that the writer, not the reader, is searching for clarity. Cisco is so silly to address the media reports in a blog after stating its policy is that it does not comment on what it regards as speculation.


If Cisco can so quickly step outside of its own stated policies by attempting to "be clear" about an issue, I'm led to think that the company is likely to be shopping the set-top unit while stating its affinity for set-tops in its corporate blog posts.


To say it loves set-tops is not the same as Cisco saying that the sale of its set-top unit has not been a topic for conversation in meetings. Cisco could tell us as much, but it doesn't comment on speculation.


 


 


 

msilbey
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msilbey,
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12/5/2012 | 5:42:06 PM
re: Cisco: 'We Love Set-Top Boxes'


It would be interesting to see Cisco drop its QAM set-top business, but I have a hard time seeing the advantage right now given the gateway movement. Everyone and their mother can create an IP box, but the value of a QAM/IP gateway is significantly higher. Of course, it's a lot of investment too, but Cisco's already put that money in. I can't see why someone new would get into the game now, but I also can't see why the big guys would dump QAM now when there are still years ahead for milking that revenue even as the industry shifts to IP. 

DCITDave
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DCITDave,
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12/5/2012 | 5:42:06 PM
re: Cisco: 'We Love Set-Top Boxes'


Right. The company can simultaneously have two loves. It loves set-tops. And it loves profit margins.


Also, for Videscape to work, a set-top is not needed. Just some hardware somewhere in the home to decode and translate/transmit the signal to an end device or screen.


Right now, the set-top is as good a device as any for that chore. In a little while, I think home networks will be more about having one all-powerful gateway (managed by the service provider) and a plethora of end devices to distribute content. 


A few more years into the future, I wouldn't be surprised to just see wireless broadband baked into all end devices with no home network needed at all to consume cloud-based services.


 

Jeff Baumgartner
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Jeff Baumgartner,
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12/5/2012 | 5:42:04 PM
re: Cisco: 'We Love Set-Top Boxes'


Yeah, the way it was told to me again today is that they'd be looking to unload the whole STB biz, qam, ip, hybrid, etc.   Plus, I've got some additional detail on the other cable businesses that they got from SA and what they plan to do with that.  anyway, more on that later today. and I agree...who would want a QAM-only STB biz or be willing to pay for a unit that is that limited and clearly on the decline. JB


 




 
Rush21120
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Rush21120,
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12/5/2012 | 5:42:02 PM
re: Cisco: 'We Love Set-Top Boxes'


SA was about revenue and customers for Cisco.  In fact SA was given lower margin expectations then the other produt familys when I worked for Cisco at the benefit of more customers and revenue.  As revenue and margins fall, it's a business decision held up only by what to replace the revenue with.

Jeff Baumgartner
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Jeff Baumgartner,
User Rank: Light Beer
12/5/2012 | 5:42:01 PM
re: Cisco: 'We Love Set-Top Boxes'


And it sounds like they are being selective on what they are trying to sell. Rather than selling all of what we used to know as SA, they are picking their spots, starting with the STB unit, or what's left from that to actually sell. Still I wonder who would buy it.. the original story suggested private equity... i might suggest Arris as they look to make more hay with STBs/video gateways, but I think they and Cisco are too competitive everywhere else for such a deal to come together, even if it was at a price Arris wouldn't balk at. JB




 
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