Who Makes What: Cable TV Equipment

Merger fever has finally hit the cable tech industry recently, after years of warnings by industry analysts. Especially known for its dizzying array of specialty equipment suppliers and software developers, the industry has started seeing larger tech players swoop in to buy smaller ones as both cable operators and their new telco TV rivals have begun demanding integrated, end-to-end system solutions from their vendors.

In just the last few months, Motorola Inc. (NYSE: MOT) has plunged into the video-on-demand (VOD) and switched digital broadcast markets by scooping up startups Broadbus Technologies Inc. and Vertasent LLC . (See Motorola Scoops Up Broadbus.) At the same time, Cisco Systems Inc. (Nasdaq: CSCO) has gobbled up another VOD/switched-digital startup, Arroyo Video Solutions, and Harmonic Inc. (Nasdaq: HLIT) has swung a deal for the IP video networking software business of a fourth young vendor, Entone Inc. (See Cisco Snatches VOD Vendor Arroyo Video and Harmonic Spends $45M on Entone VOD-Ware.)

Back in February, Cisco turbocharged the cable rollup race by gobbling up Scientific Atlanta . (See Cisco/SA: The Integration Starts Now.) Now Lucent Technologies Inc. (NYSE: LU) / Alcatel (NYSE: ALA; Paris: CGEP:PA) is eyeing a major push into cable following its IPTV and FTTP success with U.S. telcos. Nokia Corp. (NYSE: NOK) / Siemens AG (NYSE: SI; Frankfurt: SIE) could also make a move in an effort to unseat incumbent Nortel Networks Ltd. , given Siemens’ presence in the PacketCable softswitch market.

As a result of this overdue consolidation trend, the seven biggest suppliers in the cable tech industry now have offerings in a number of key product categories. But many gaps remain. Let’s take a look at what is now stocked and short in the seven gorillas’ cupboards:

Table 1: Cable Vendor Product Solution Scorecard
Cisco SA Motorola Nortel Lucent Alcatel Nokia Siemens Arris C-COR
Digital Set-Tops X X
Edge QAM X X X
HFC Infrastructure X X X X
Metro Optical X X X X X X
PacketCable EMTA X X X
PacketCable CMS X X X X
PCMM Policy Server X
Service Control X X
Video Processing
VOD servers X X X
A note on the scorecard: A check-box accounting of product solutions does not offer an assessment of quality or competitiveness. To strengthen its position, a gorilla may well consider acquiring a solution that surpasses its existing offering.

Not too surprisingly, Cisco/SA and Motorola, the two largest cable vendors, have by far the broadest product portfolios. Their lineups include everything from digital set-tops to DOCSIS modems and CMTSs, plus HFC infrastructure and optical solutions. Cisco has a PacketCable CMS (softswitch) and service control platform, both of which Motorola now lacks. But Motorola has ventured more quickly into the VOD market through its purchases of Broadbus and Vertasent. Neither has a PacketCable Multimedia (PCMM) policy server. Arris Group Inc. (Nasdaq: ARRS) boasts the next biggest product suite for cable, making it a nice possible fit for either Lucatel or Nortel.

More takeovers are expected. Classic cable pure-plays, like Arris and C-COR Corp. (Nasdaq: CCBL), are logical takeover targets. Or, they may opt to buy other, smaller firms to beef up and compete against their larger brethren. Other players include: cable incumbents Harmonic, Terayon Communication Systems Inc. , and Vyyo Inc. (Nasdaq: VYYO); VOD server suppliers SeaChange International Inc. (Nasdaq: SEAC) and Concurrent Computer Corp. (Nasdaq: CCUR); and billing and OSS vendors CSG Systems International Inc. (Nasdaq: CSGS) and Convergys Corp. (NYSE: CVG).

There is also a cadre of cable startups that could become tasty morsels for the growing infrastructure gorillas. Here’s our top ten list: BigBand Networks Inc. (Nasdaq: BBND), CableMatrix Technologies Inc. , Camiant Inc. , Cedar Point Communications Inc. , Ellacoya Networks Inc. , Kasenna Inc. , Narad Networks Inc. , OpVista Inc. , Proxilliant Systems Corp. , and RGB Networks Inc.

Most of these startups contend that they are working to build sustainable businesses, not just building to sell. That's to be expected. At the end of the day, though, venture capitalists want their money back. And then some. That requires a liquidity event either through a merger, sale, or iIPO.

Table 2: A Gorilla�s Cable Startup Shopping List
Product Startup
Edge QAM BigBand, RGB
HFC infrastructure Narad, Proxiliant
Metro optical OpVista
PacketCable CMS Cedar Point
PCMM policy server Camiant, CableMatrix
Service control Ellacoya Networks
Video processing BigBand, RGB
VOD servers Arroyo, Kasenna

— Alan Breznick, Site Editor, Cable Digital News

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