Light Reading
Samsung's cost-cutting is making set-tops an even suckier business, but Cisco insists it's still committed to the boxes

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
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.

Educational Resources
sponsor supplied content
Educational Resources Archive
Flash Poll
LRTV Huawei Video Resource Center
The Inaugural Optical Innovation Forum in Nice

9|2|14   |     |   (0) comments


More than 170 attendees from network operators, service providers, analyst firms, and component companies from around the world convened in Nice in June for the inaugural Optical Innovation Forum, co-produced by Huawei and Light Reading.
Wagner’s Ring
Data Centers Drive Telcos Into the Future

8|28|14   |   2:20   |   (2) comments


Data centers are at the heart of key trends driving telecom -- network virtualization, the drive for increased agility, and the need to compete with OTT providers.
LRTV Custom TV
Why SPs Should Consider Cisco's EPN

8|27|14   |   5:40   |   (0) comments


Sultan Dawood from Cisco discusses Cisco's EPN, which enables SPs to build agile and programmable networks delivering new network virtualized services using Cisco's Evolved Services Platform (ESP).
LRTV Huawei Video Resource Center
Huawei’s Showcase @ Big Telecom Event 2014

8|26|14   |   2.56   |   (0) comments


SoftCOM is Huawei's framework for telecom business and network transformation. Haofei Liu, Solution Marketing Manager, Carrier Business Group, Huawei, showcases Huawei's SoftCOM architecture in this video.
LRTV Huawei Video Resource Center
Huawei @ BTE 2014: Director of Integrated Solutions on SoftCOM & NFV Monetization

8|26|14   |   4.43   |   (0) comments


Libin Dai, Director of Integrated Solutions, Carrier Business Group, discusses Huawei's SoftCOM and NFV monetization. Huawei believes that NFV monetization should be service-driven rather than network-driven, and that operators should have network transformation, service transformation and a compatible and collaborative ecosystem in place in order to deploy NFV.
LRTV Huawei Video Resource Center
Huawei @ BTE 2014: Director of US NFV Lab on CloudEdge & the Future of NFV

8|26|14   |   4.06   |   (0) comments


Sean Chen, Director of US NFV Lab at Huawei, discusses Huawei's new approach to NFV in open collaboration. Huawei believes that through Proof of Concept tests, it could help operators learn and communicate with the industry more effectively. Sean believes that successful implementation of NFV should have its values reaching to end users and discusses how Huawei's ...
LRTV Huawei Video Resource Center
Huawei's Highlights @ Big Telecom Event 2014

8|26|14   |   3.34   |   (0) comments


At the Big Telecom Event in Chicago Huawei showcases its high-level strategy, the SoftCOM architecture, which helps operators reduce the cost of ownership of their network infrastructure and generate additional revenue in the ICT service environment. Huawei showcases over 30 pilot programs from across the globe, focusing on the industry-leading commercial ...
LRTV Custom TV
VeEX – Live from the Show

8|21|14   |   5:58   |   (0) comments


An overview of VeEX Test and Measurement solutions including TX300S multi-service test set with VeExpress cloud-based management system, UX400 universal modular platform supporting 100G testing, and the redesigned RXT modular platform.
LRTV Custom TV
Transitioning CE 2.0 Networks Into the SDN & NFV Era With Telco Systems

8|19|14   |   5:19   |   (0) comments


Telco Systems' Ariel Efrati (CEO) and Moshe Shimon (VP of Product Management) discuss virtualization and how the company's new Open Metro Edge solution utilizes the SDN and NFV concepts to accelerate and orchestrate service delivery through its innovative product portfolio and software applications.
LRTV Custom TV
NFV Myths: Is NFV Still Several Years Away?

8|11|14   |   1:13   |   (0) comments


Some say that NFV (network functions virtualization) is still several years away from being implemented on mobile operator networks. This isn't the case. Operators can get started on their paths to NFV now, as this short video from Skyfire shows.
LRTV Custom TV
A New Security Paradigm in SDN/NFV

7|28|14   |   02:54   |   (0) comments


Paul Shaneck, Global Director Network Solutions for Symantec, discusses the evolving virtualized network, explaining how Symantec is leading the security discussion as it relates to SDN and NFV, and helping to ensure the network is protected and compliant.
LRTV Documentaries
Sprint's Network Evolution

7|24|14   |   14:59   |   (0) comments


Sprint's Jay Bluhm gives a keynote speech at the Big Telecom Event (BTE) about Sprint's network and services evolution strategy, including Spark.
Upcoming Live Events!!
September 16, 2014, Santa Clara, CA
September 16, 2014, Santa Clara, CA
September 23, 2014, Denver, CO
October 29, 2014, New York City
November 6, 2014, Santa Clara
November 11, 2014, Atlanta, GA
December 2, 2014, New York City
December 9-10, 2014, Reykjavik, Iceland
June 9-10, 2015, Chicago, IL
Infographics
A survey conducted by Vasona Networks suggests that 72% of mobile users expect good performance all the time, and they'll blame the network operator when it's not up to par.
Today's Cartoon
Hot Topics
Nokia's Maps Land on Samsung Devices
Sarah Reedy, Senior Editor, 8/29/2014
Now Google Planning Drones-to-Go
Dan Jones, Mobile Editor, 8/29/2014
Music to My Mobile
Sarah Reedy, Senior Editor, 8/28/2014
Be Open to the Freedom of Openness
Kelly Herrell, 8/29/2014
Netflix to FCC: Kill Comcast-TWC Deal
Alan Breznick, Cable/Video Practice Leader, 8/28/2014
Like Us on Facebook
Twitter Feed