Cisco's Cable Crunch
According to Sanford C. Bernstein & Co. Inc. analyst Craig Moffett, there are three potential explanatory ingredients, and two of them are actually good news for Cisco's MSO customers.
The first, most obvious contributor -- the sad housing market -- is bad for both parties. It's contributing to cable's subscriber losses, and reducing demand for new set-tops.
The second -- digital video saturation -- helps out cable because it has to buy fewer set-tops, but that's not good for Cisco's bottom line. "Even demand for advanced set-top boxes is beginning to wane as HDTV and DVR penetration rates level off," Moffett notes.
Still, further out, it might turn out to be a downer for MSOs, too, because it will be hard to maintain and build a segment of the business that's traditionally been a growth area. In fact, Time Warner Cable Inc. (NYSE: TWC) and Cablevision Systems Corp. (NYSE: CVC) both lost some digital video subs in the third quarter, so it's already starting. (See Cablevision's Ready for Streaming & Slinging, TWC Posts Q3 , and Comcast Loses 275K Video Subscribers in Q3.)
Lastly, Moffett suggests that Cisco's poor set-top performance indicates cracks in the so-called set-top duopoly enjoyed by Cisco and Motorola Inc. (NYSE: MOT). How soon those cracks will expand to gaping fissures is difficult to tell, but Cisco acknowledged that it's getting pressured as lower-cost competitors begin the enter the market. (See Huawei Expands Its Cable CPE Universe and Cracks Emerge in the Moto-Cisco Duopoly .)
That's more help for the MSOs since they'll be spending less on the fewer number of boxes they will need to buy.
"It is impossible to say which of these three explanations is at work in Cisco's observed decline in orders," Moffett said, but noted that TWC's, Cisco's largest cable box customer, "is at the heart of the story."
— Jeff Baumgartner, Site Editor, Light Reading Cable