Foxconn Buys Cisco's Set-Top Factory

LR Cable News Analysis Jeff Baumgartner, Senior Editor, Light Reading 7/18/2011

Cisco Systems Inc. (Nasdaq: CSCO) has sold its set-top box factory in Juarez, Mexico, to Foxconn Technology Group, the electronics outsourcing giant based in Taiwan.

Foxconn emerged as the buyer about a week after Light Reading Cable reported that Cisco had the facility on the block. [Ed note: A tip of the hat to reader "pnni-1" for having Foxconn pegged as the likely buyer on the Light Reading message board.] (See Cisco Set-Top Plant Is for Sale .)

Cisco said about 5,000 people currently employed at the facility will join Foxconn in the first quarter of its fiscal 2012 and says it doesn't expect any job losses to come as a result. The 5,000 employees affected are in addition to the 6,500 Cisco employees that took the company' s "early retirement" package or are being laid off outright. (See Cisco Simplifies; Cuts 6,500 Jobs.)

Cisco inherited the factory from its acquisition of Scientific Atlanta in 2006. Cisco and Foxconn are expected to close the deal by October.

Why this matters
The set-top factory sale factors into Cisco's plan to trim $1 billion in expenses during its current fiscal year. A Cisco spokesperson wouldn't comment on the purchase price for the Mexican facility.

Industry sources say the factory was put up for sale after it was unable to reduce costs and product margins to Cisco's liking. The hope is that Foxconn can do better in this area. Foxconn, a Cisco spokeswoman said, will produce set-tops out of the facility for Cisco after the sale is completed.

She said roughly 95 percent of Cisco's manufacturing needs are already handled by third-party contractors, and the arrangement with Foxconn moves the STB operation "in line with the rest of [Cisco's] manufacturing strategy."

The spokeswoman also stressed that the sale of the facility does not mean Cisco is getting out of the set-top box business.

For more
Read more about Cisco's set-top box adventures:

— Jeff Baumgartner, Site Editor, Light Reading Cable