& cplSiteName &

Why Cisco Wants Out of Set-Tops (Or Not)

Jeff Baumgartner
LR Cable News Analysis
Jeff Baumgartner
2/23/2012
50%
50%

Cisco Systems Inc. (Nasdaq: CSCO) badly wants to sell its set-top box business, multiple sources tell Light Reading, but CEO John Chambers is adamant that Cisco has no such plans.

Let's start with the case why Cisco would want out: shrinking margins.

"The set-top box business sucks right now for anybody," says an industry source who's close to the market, noting that Cisco has hired an investment banking firm to find some prospective buyers for that part of the business. Another source says Cisco has been pitching the idea "selectively." (See Cisco: 'We Love Set-Top Boxes' and Cisco Puts STB Unit Up for Sale.)

Margins are worsening thanks to heavy-handed price cutting by Samsung Corp. as part of its strategy at Time Warner Cable Inc. (NYSE: TWC), Cisco's biggest set-top customer, Bright House Networks and Cablevision Systems Corp. (NYSE: CVC).

A source says Samsung's kept the pressure on by dropping its price on fully-featured HD-DVRs and less-capable client boxes by more than 20 percent in the last 12 months. "They [Samsung] have made a long-term commitment to this market, and they are doing it through pricing," the source says.

Additionally, Samsung's set-top group is part of its consumer electronics division. Some MSOs like that structure, because the vendor can help them develop concurrently on set-tops and on Samsung connected TVs -- an evolving strategy that box competitors like Cisco, Motorola Mobility LLC and Pace Micro Technology would have trouble matching. (See CES 2011: Samsung Puts MSOs in the Picture.)

And Samsung's approach with major MSOs means Cisco's STB pricing, even on existing contracts, isn't necessarily fixed. Some of its larger customers have stipulated in supply contracts that the vendor keep pricing within a whiff of the lowest rates for like products or risk losing the deal. "Cisco's realized that they can't compete on a pricing standpoint," says a source who is familiar with the policy.

Cisco's rebuttal
Chambers, though, insists Cisco doesn't even question keeping set-tops. He says they are a central piece in Cisco's long-term video strategy and because service providers consider it important for Cisco to stay in the business.

In a roundtable session with press on Wednesday, covering a wide scope of topics, Chambers had to chuckle about getting asked "every three months" about whether Cisco will sell the set-top business.

"After growing 23 percent last quarter? Can you imagine what our service providers would do to us if we said we're moving out of the set-top business?" Chambers said. "For us to move out of a market where we're a leader and the market's evolving as we hoped -- that would just make no sense."

Cisco's belief is that video will ultimately live in the cloud -- where Cisco's Videoscape framework would connect it to a variety of devices and networks. That transition will take at least five years, during which time set-tops will change accordingly, starting with a shift to being IP-based, Chambers said.

Cisco typically doesn't comment on rumors, but Chambers seemed eager to squelch this one. "I'm surprised you aren't beating me up on why we even let that rumor get out, given how important it is to all our customers, from the AT&Ts to the Verizons, to Cox to Time Warner Cable, to the Deutsche Telekoms, to the BTs -- I mean, this is mainline for them."

Who would buy it?
The New York Post's original story about Cisco's interest in selling its set-top business identified private equity firms among the likely suitors. Other observers tell Light Reading Cable that Cisco might get some interest from Asian manufacturers that are looking to break into domestic cable. Huawei Technologies Co. Ltd. once had eyes for Motorola, but U.S. government scrutiny on the Chinese giant might make a play for Cisco's set-top unit a tough sell. (See Huawei Seen as Likely Moto Suitor and US Gets Worried About Huawei .)

But what's left for Cisco to sell? It still has lots of set-top box customers, and sales to service providers did rise 23 percent, as Chambers noted. So, it still might appeal to a set-top player that wants to expand its U.S. presence, such as Pace plc .

However, it's not the same standalone business it used to be after Cisco sold off its set-top manufacturing facility, and it no longer spins its own set-top silicon, a previous strategy that helped Cisco differentiate while also helping MSOs keep Broadcom Corp. (Nasdaq: BRCM) in check.

Cisco still has a set-top box design and engineering group, but even that's smaller now that some engineers who joined Cisco via the Scientific-Atlanta acquisition have since left.

It's also unclear if Cisco would pitch its conditional access system as part of the package. Cisco might try to keep that piece and continue to sell CableCARD security modules, which have better margins than the set-top boxes they are slotted into.

That would also help Cisco say with a straight face that it's indeed committed to the set-top box market, while also ensuring that its Videoscape platform can be integrated with set-top boxes from any supplier.

— Jeff Baumgartner, Site Editor, Light Reading Cable, and Craig Matsumoto, Managing Editor, Light Reading

(4)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Lrmooney
50%
50%
Lrmooney,
User Rank: Light Beer
12/5/2012 | 5:41:43 PM
re: Why Cisco Wants Out of Set-Tops (Or Not)


Good story Jeff and interesting Samsung strategy. There is a lot out there validating the idea that they want to switch strategies re stb.


It is funny given that the big muti-product vendors, Cisco, Moto etc have long used the strategy of reducing prices of one product if MSOs buy multiple products, making it difficult for other vendors that make fewer components. 


It goes without saying if they admit now they dont want to be in the stb in 5yrs, their customers will start looking for replacements now, it will be interesting to see how it plays out,

Jeff Baumgartner
50%
50%
Jeff Baumgartner,
User Rank: Light Beer
12/5/2012 | 5:41:42 PM
re: Why Cisco Wants Out of Set-Tops (Or Not)


Thanks, and good point. When you put it that way, I can see why Cisco would want to tread carefully on this topic...trying to sell the STB unit could send the wrong message and require them to go into damage control mode. At the same time, I wouldn't blame them for wanting to shed it. So long as their Videoscape platform can connect to a STB of any make, I don't see why SPs would get all hot and bothered if Cisco got out of a business that's probably going to be on the side of decline... God knows how many complaints from operators we've heard over the years that the existing players don't innovate enough.  The notion of getting some new blood on the task doesn't sound like a horrid idea to me. JB


 

Flook
50%
50%
Flook,
User Rank: Light Beer
12/5/2012 | 5:41:38 PM
re: Why Cisco Wants Out of Set-Tops (Or Not)


On the other hand, if Cisco pulled the rug on its STB business in the fourth year, it would really upset its customers, particularly after the strong denials.

Flook
50%
50%
Flook,
User Rank: Light Beer
12/5/2012 | 5:41:38 PM
re: Why Cisco Wants Out of Set-Tops (Or Not)


On the other hand, if Cisco pulled the rug on its STB business in the fourth year, it would really upset its customers, particularly after the strong denials.

From The Founder
The independent evaluation of Nokia's key virtual network functions (VNFs) was a defining moment for the Finnish giant.
Flash Poll
Live Streaming Video
Charting the CSP’s Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it’s going from two industry veterans.
LRTV Custom TV
Cisco's Innovations in Cable

5|26|16   |   03:18   |   (0) comments


Marc Aldrich from Cisco discusses the latest in security, the evolution and momentum for CCAP and what the industry will be seeing next from Cisco.
LRTV Documentaries
Leading Lights 2016 Highlights

5|25|16   |   02:26   |   (1) comment


Some of the high points from this year's Leading Lights awards dinner at the Hotel Ella in Austin, Texas.
LRTV Documentaries
Light Reading Hall of Fame 2016

5|23|16   |   05:43   |   (0) comments


Find out who has been welcomed into Light Reading's Hall of Fame this year.
LRTV Custom TV
ZTE TM Forum Highlights

5|23|16   |     |   (0) comments


ZTE showcased its new ICT solutions at TM Forum in Nice.
LRTV Interviews
Gamma's MD on the Emergence of UC2

5|20|16   |     |   (0) comments


Gamma Communications Managing Director David Macfarlane believes the unified communications (UC) market has reached a tipping point.
LRTV Custom TV
The Ultimate 5-Minute Guide to Digital Customer Engagement

5|20|16   |     |   (0) comments


In this short video, you will hear all about how Digital Customer Engagement is the key to meeting customer expectations, keeping them happy, and maximizing revenue. VP Product & Marketing at Pontis, Ofer Razon, breaks down for us the five essential capabilities for successful Digital Customer Engagement. Don’t miss!
LRTV Custom TV
NFV in 2016: Part 1 – NFV Use Cases Get Real

5|19|16   |   05:57   |   (0) comments


Consensus is building around the key use cases for NFV, including managed IP services at the network edge and on customer premises, which can generate new revenues from enterprises/SMBs and consumers; Evolved Packet Core to support LTE migration; and adjacent technologies, such as TAS and IMS, to support VoLTE and next-generation charging and policy control ...
LRTV Custom TV
Nokia's Steve Vogelsang on NFV – Part 3

5|19|16   |     |   (0) comments


Steve Vogelsang discusses the challenges of operational transformation and how Nokia helps its customers. Join Steve at the Big Communications Event in Austin the morning of May 24, on his keynote and optical networking panel.
LRTV Interviews
Level 3: Why UC Is In Demand

5|17|16   |   04:12   |   (1) comment


Andrew Edison, Level 3's senior VP of sales, EMEA region, talks about the drivers of growth in the unified communications services market.
LRTV Custom TV
ARM's OPNFV Action

5|17|16   |     |   (0) comments


At the ARM booth at MWC 2016, Joe Kidder and Bob Monkman speak to Light Reading about OPNFV and their upcoming action.
LRTV Custom TV
Nokia's Steve Vogelsang on NFV – Part 2

5|16|16   |     |   (0) comments


Steve Vogelsang gives advice to service providers on how to move to NFV. Join Steve at the Big Communications Event in Austin the morning of May 24, on his keynote and optical networking panel.
LRTV Interviews
Interoute CTO on NFV's Maturity

5|13|16   |   06:46   |   (1) comment


Matt Finnie, CTO at international operator Interoute, explains how NFV has made life easier in terms of logistics and how Interoute can now enable a 'software-defined moment' for its customers.
Upcoming Live Events
September 13-14, 2016, The Curtis Hotel, Denver, CO
December 6-8, 2016,
June 16-18, 2017, Austin Convention Center, Austin, TX
All Upcoming Live Events
Infographics
A new survey conducted by Heavy Reading and TM Forum shows that CSPs around the world see the move to digital operations as a necessary part of their overall virtualization strategies.
Hot Topics
DT: Telcos Must Escape Vendor Prison
Iain Morris, News Editor, 5/24/2016
AT&T to Start 5G 'Friendly' Trial by 2016 End
Dan Jones, Mobile Editor, 5/24/2016
Cisco's Patel Hails 'Microculture' Successes
Iain Morris, News Editor, 5/26/2016
Cable Is Eyeing Its Retail Options
Mari Silbey, Senior Editor, Cable/Video, 5/25/2016
AT&T's Margaret Chiosi Retires
Ray Le Maistre, Editor-in-chief, 5/25/2016
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
In this latest installment of the CEO Chat series, Craig Labovitz, co-founder and CEO of Deepfield, sits down with Light Reading's Steve Saunders in Light Reading's New York City office to discuss how Deepfield fits in with the big data trend and more.
Grant van Rooyen, president and CEO of Cologix, sits down with Steve Saunders, founder and CEO of Light Reading, in the vendor's New Jersey facility to offer an inside look at the company's success story and discuss the importance of security in the telecom industry.
Animals with Phones
Live Digital Audio

Our world has evolved through innovation from the Industrial Revolution of the 1740s to the information age, and it is now entering the Fourth Industrial Revolution, driven by technology. Technology is driving a paradigm shift in the way digital solutions deliver a connected world, changing the way we live, communicate and provide solutions. It can have a powerful impact on how we tackle some of the world’s most pressing problems. In this radio show, Caroline Dowling, President of Communications Infrastructure & Enterprise Computing at Flex, will join Women in Comms Director Sarah Thomas to discuss the impact technology has on society and how it can be a game-changer across the globe; improving lives and creating a smarter world. Dowling, a Cork, Ireland, native and graduate of Harvard Business School's Advanced Management Program, will also discuss her experience managing an international team focused on innovation in an age of high-speed change.