What's Left of Cisco's Love Affair With Cable?
The signs were clear before Cisco announced the sell-off of its Service Provider Video Software Solutions business earlier this week. In fiscal year 2017, Cisco managed to stem the unit's losses somewhat over time, but revenues still dropped precipitously by 41% and 30% respectively in the second and third quarters, before declining at a more moderate rate of 10% in the fourth quarter.
The breakout of video software sales disappeared altogether starting in fiscal year 2018. In fact, Cisco stopped using the word "video" entirely in its earnings press releases beginning two quarters ago.
The shift for Cisco Systems Inc. (Nasdaq: CSCO) is fairly dramatic. The company bought set-top maker Scientific Atlanta in 2005 before scooping up NDS for its video software in 2012. The acquisitions made Cisco a juggernaut in the cable video industry, and set up a Cisco/Motorola duopoly that dominated the market for several years.
This was also at a time when Cisco looked to the cable video business as a foil for its challenges in the retail market. After buying up Linksys for its retail networking equipment in 2003, Cisco sold that business off to Belkin in 2013. Over a much shorter time frame, Cisco also acquired the popular consumer Flip camera business in 2009, only to shut it down two years later.
But Cisco's foray into the pay-TV sector didn't go as planned either. Blame market changes. Blame too much diversification. Regardless of the reason, it turns out that the company's reinvention as a consumer video powerhouse didn't stick. (See Cisco Dumps Video Software Biz, Ends NDS Era.)
There is one piece of the cable service provider business that Cisco has held on to, however. That's the division dedicated to broadband gear in the cable access network. And this is where things get interesting.
There is arguably more happening in the access network space now than in the last 20 years. In fact, new companies are entering the market, whereas in the rest of the cable industry, vendors are fleeing for the hills. (See Why Cable Is Upgrading Networks Now.)
Even further, the cable access market is headed in a direction that Cisco wants to go -- edging toward a future that looks more like enterprise networking than the outpost of cable infrastructure.
There are still significant challenges. Virtualization, the move toward software and white boxes; these are issues that pose a serious threat to Cisco's future. But they're also challenges that Cisco knows it has to face and overcome if it wants to survive. (See Cisco Bows to Carrier Demand for Software Outside the Box.)
Not so much with video.
More than a decade in the cable TV business is too long to call Cisco's romance with the sector a mere dalliance. But in the end, the relationship hasn't lived up to the hype. IP networking is where Cisco's heart lies. Set-tops and video software? More of a long-term fling.
— Mari Silbey, Senior Editor, Light Reading