Cisco Scores With Video

Cisco Systems Inc.'s US$5 billion buyout of video specialist NDS last July is starting to pay off big.

In reporting third-quarter earnings Wednesday, Cisco said revenues for its service provider video group climbed to $1.29 billion in its fiscal third quarter, up 30 percent from the same period last year. As a result, video equipment and software accounted for slightly more than 10 percent of Cisco's overall revenues.

On the company's earnings call, Cisco CEO John Chambers credited much of the video revenue gain to the company's acquisition of NDS, a firm that focused on video software, security and product integration. Noting that the quarterly video surge was "driven largely by NDS," he said the integration of NDS into the rest of the company's video product family "continues to go well."

Chambers also stressed that Videoscape Unity, the company's managed multi-screen video platform for cable operators and telcos, is gaining "continued traction." He noted that two new European service providers, including GET of Norway, signed up for Videoscape in the last quarter, joining such other large providers as Cox Communications Inc. and Liberty Liberty Media Corp.

The "service provider [area] was very strong," he said. "You're seeing our relevance to the large players. The AT&Ts, the Verizons, the Time Warners, the Comcasts continue to be very solid … I like the trends I the U.S."

In contrast, Arris Group Inc., which is now Cisco's biggest rival in the cable and video technology markets, recently reported lackluster results for its slumping Motorola Home division in the first quarter. Arris executives also said they expect to see lower product sales in the second quarter, largely because of the toll that ownership distractions and uncertainties took on Motorola Home's management team and employees over the past couple of years.

But Arris officials emphasized that they anticipate Motorola Home revenues perking up again in the second half of the year as major cable and telco customers start to introduce new, more advanced video and broadband products, including home video gateways for multi-screen service. Arris' leaders also see opportunities to take market share back from such key competitors as Cisco. (See Arris Sees Stormy Spring.)

Speaking to financial analysts, Chambers brushed aside any concerns about competing with a beefed-up Arris, or anybody else for that matter. "We take competition very seriously, and make no mistake about it, we love to compete," he said. "It focuses us. History is littered with companies, large and small, upstarts and establishes, that bet against Cisco and failed."

In his recent calls with analysts, Arris Chairman and CEO Bob Stanzione has said that he sees major service providers starting to spend more on capex for the first time in years. Stanzione is counting on such spending hikes to spur at least some of Arris' projected gains.

Chambers, however, views things differently. Although the U.S. looks stronger than the rest of the world, he said, he sees service provider capex "continuing to be challenged."

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— Alan Breznick, Cable/Video Practice Leader, Light Reading

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