Tandberg Deal Boosts Cisco's Video Plans

Could Cisco Systems Inc. (Nasdaq: CSCO)'s Tandberg ASA (OSE: TAA) acquisition be the thing that solidifies TelePresence as a mainstream enterprise tool?

Cisco's $3 billion cash deal, announced today, has it paying an 11 percent premium over Tandberg's stock price yesterday. The acquisition will be subject to the usual regulatory approvals. (See Cisco Bets $3B on Tandberg .)

Dig this: Tandberg is Cisco's biggest acquisition since WebEx ($3.2 billion) in 2007 and Scientific Atlanta ($6.9 billion) in 2005. (See Cisco to Buy WebEx for $3.2B and Cisco to Acquire Scientific-Atlanta.) By the size alone, the deal indicates how seriously Cisco is taking video-based enterprise services.

"They put their money where their mouth is, that's for sure. They've been talking about how video has been taking off in the enterprise," says Nick Lippis, principal analyst with Lippis Enterprises .

Indeed, Cisco ended 2008 declaring that video would be a huge part of its future. (See Cisco's Video Transformation , Cisco's Video Blitz, and Cisco Revs Its Video Engine.)

Cisco's TelePresence was crafted as an elite product, requiring dedicated network connections. Cisco even consulted with customers on wall colors for TelePresence rooms. (See Cisco Dials Up Videoconferencing.) Scaling all that into a mainstream videoconferencing product was going to be difficult, says Zeus Kerravala, analyst with Yankee Group Research Inc. .

"They've been dabbling in video with the Flip acquisition and TelePresence, but those are pretty nichey products," Kerravala says. (See Cisco's Latest Buy: Flippin' Sweet.) "I think of TelePresence as a tool that needs to be scheduled. What Tandberg has can be used more ad hoc."

But unlike Flip -- "Flip, I still don't get," Lippis says -- Tandberg might find a good, quick fit with Cisco's enterprise portfolio. Lippis sees videoconferencing being a good adjunct to WebEx's conferencing and Cisco's unified communications suite.

"When you own all three of those together, you get a portfolio in real-time collaboration that is unmatched by anybody in the industry," Lippis says. "That is what a lot of the industry is starting to wrap their minds around: How do we do a lot of real-time collaboration?"

Separately, the deal could also cause some rifts in each company's partnerships. Cisco was the biggest customer for Radvision Ltd. (Nasdaq: RVSN), a Tandberg competitor that now seems out in the cold. (See Cisco Socks Radvision.) And Tandberg had partnerships with HP Inc. (NYSE: HPQ) and Microsoft Corp. (Nasdaq: MSFT), which are "not at the top of Cisco's fan club," Kerravala says.

— Craig Matsumoto, West Coast Editor, Light Reading

Pete Baldwin 12/5/2012 | 3:55:09 PM
re: Tandberg Deal Boosts Cisco's Video Plans

I didn't realize this gives Cisco a leading market share in videoconferencing: over 40%, versus 34% for Polycom.  (That's from a Catherine Trebnick (Avian Securities) report, quoting Wainwright Research numbers.)  Nearly all of that 40% comes from Tandberg; Cisco is probably the "over" part.

That "increases the likelihood that HP goes after Polycom," Trebnick writes.

Was this really Cisco's first acquisition outside the U.S.?  Given that they've got a lot of offshore cash, people seem to be expecting more international acquisitions soon.

Jeff Baumgartner 12/5/2012 | 3:54:09 PM
re: Tandberg Deal Boosts Cisco's Video Plans

Will $3B be enough for Cisco to land Tandberg? Maybe not. A group of investors that collectively hold 24% of Tandberg have apparently rejected the deal , claiming the offer is too low.

Cisco's holding firm to a belief that the offered price is fair, but an analyst is telling Barron's that Cisco could clinch it by offering 10-15 percent more. JB

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