Open House at Casa Systems?
SeaChange International Inc. (Nasdaq: SEAC)'s divestment in Casa Systems Inc. is adding fuel to the speculation that the cable modem termination system (CMTS) and edge QAM startup has been seeking a buyer.
SeaChange, a company known for its video servers and software systems, announced today that it has sold its nearly 20 percent stake back to Casa for $34.1 million. (See SeaChange Sheds Stake in Casa Systems.)
Multiple industry sources have told Light Reading Cable that Casa has been on the block for many months and has attracted looks from vendors including Alcatel-Lucent (NYSE: ALU) and Huawei Technologies Co. Ltd.
Industry sources say other potential suitors could include private equity firms or other vendors that would consider adding a core CMTS to their product lineups, such as RGB Networks Inc. , Harmonic Inc. (Nasdaq: HLIT), and Juniper Networks Inc. (NYSE: JNPR).
But why would any of those folks be interested in entering a hard-to-crack sector that's already dominated by Arris Group Inc. (Nasdaq: ARRS), Cisco Systems Inc. (Nasdaq: CSCO), and Motorola Inc. (NYSE: MOT), and caused another supplier, BigBand Networks Inc. (Nasdaq: BBND), to bug out of the core CMTS business altogether? (See BigBand Terminates CMTS.)
Granted, Casa wouldn't provide many gains in the hemmed-in market for older CMTSs, but Casa does offer a somewhat proven core CMTS as next-generation cable access initiatives, such as Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s Converged Multiservice Access Platform (CMAP), get under way. (See Arris Beats Cisco in CMTS for '09, Cox Adds Weight to Comcast's Big Box Project , and Comcast Proposes Its God Box .)
What's not as clear is whether a sale of Casa is imminent. Casa CEO Jerry Guo has not responded to previous questions on the topic and was not immediately available for comment on Tuesday morning.
But analysts believe that an outright sale is the most likely outcome for Casa, partly because major MSOs are generally reluctant to buy in bulk from smaller vendors.
"A purchase is the only exit for Casa at this point," Infonetics Research Inc. directing analyst of broadband and video Jeff Heynen told Light Reading Cable in an earlier interview. He thinks Huawei is a "plausible" option, as the Casa CMTS will help it get positioned for China's big cable upgrade. But he sees Juniper as a better fit because it has some CMTS history to draw upon.
[Juniper dabbled in Docsis by buying Pacific Broadband in 2001 and through a modular-CMTS partnership with Motorola that has since been dissolved. After a long hiatus, Juniper reentered the Docsis mix late last year when it received Docsis 3.0 certification on an "embedded cable modem module" that will grace its new Docsis interface card. (See Juniper Buys Pacific Broadband and Juniper Does Docsis (Again) .)]
Heavy Reading analyst Alan Breznick adds that Casa has been unable to gain much sales traction despite being the only CMTS player to win "Full" CMTS qualification from CableLabs , a designation that covers both upstream and downstream channel bonding. (See CableLabs Cheers Casa Chassis.)
"The question is how long they can endure before they can convince larger cable operators to take a chance on them. At least on the North American side, nobody's been willing to do that," Breznick adds.
Casa has kept deployments close to the vest, but its marquee customer is UPC Broadband of Europe. Guangzhou Digital Media Group of China is also using a Casa CMTS to help power an IPTV service. (See Chinese MSO Does IPTV With Microsoft and Casa's Got a Deal in the House .)
SeaChange bought its stake in Casa in July 2005 for $8.2 million and, according to a 10-Q filed on Oct. 31, 2009, invested another $654,000 in convertible preferred stock to preserve its 19.8 percent ownership interest.
SeaChange expects to generate net after-tax proceeds of $30 million on its $8.9 million investment in the company, and, as a result, expects to post a pre-tax gain of $25.2 million in its fiscal first quarter.
SeaChange says it shed the stake to shore up its liquidity position as it realigns its product strategy and deepens its focus on software. (See SeaChange Softens Up, Cuts Staff.) However, the companies will remain partners and will "continue collaborating on future projects," SeaChange CEO Bill Styslinger said, in a statement.
— Jeff Baumgartner, Site Editor, Light Reading Cable