What Does Cisco See in China's DVN?
"For the most part, it is not a technology play," says Ken Klaer, vice president of Cisco's international cable business unit. He says about 200 DVN employees are set to join Cisco, with about half involved in sales and customer support, and the balance focused on product development.
But the cable products that DVN does have -- one-way digital converter boxes and some HD set-tops -- fit well with the dynamics that are set to alter China's cable landscape forever.
Cisco is acquiring DVN as China's MSOs move forward with a massive digitization initiative. Today, about one-third of the nation's 160 million cable subscribers are using digital services. But the Chinese government has set a plan to digitize all the cable systems there by 2015, by which time China's cable base could balloon to 200 million households. The U.S., by comparison, has about 125.4 million cable homes passed, according to National Cable & Telecommunications Association (NCTA) data.
With that growth could come more revenues per household -- $3 per month after digitization, versus an average of $2 now, Klaer estimates.
Early on, that digital shift will be heavily weighted toward one-way, broadcast digital TV services and downloadable applications. With that in mind, Klaer expects there to be high demand for unicast digital converter boxes, such as the Digital Terminal Adapter (DTA) devices that Comcast Corp. (Nasdaq: CMCSA, CMCSK) is using in its analog reclamation initiative. (See Comcast's $1B Bandwidth Plan .)
"Largely, it's a one-way infrastructure," Klaer says of China's cable landscape. But later on, as Cisco establishes more trust in China, and as MSOs activate upstream paths and introduce interactive services in a big way, Cisco could start seeing success there with cable modem termination systems (CMTSs), modems, encoders, more advanced set-tops, and conditional access systems.
Cisco makes its own DTAs, but the company won’t interfere with DVN’s progress with boxes that fit China’s digital initiative. "The short-term motivation is to help them [DVN] keep doing what they're doing," Klaer says.
According to IMS Research , DVN has about 10.5 percent of the Chinese cable box market, good for third place. Skyworth, at 14.7 percent, is tops, followed by Changhong’s 10.9 percent cut.
The opportunity for growth could become more pronounced as more of China's cable systems go digital during the next five years.
"DVN's position on the cable platform is very strong and would have a lot of potential as far as Cisco is concerned," says Anna Maxbauer, a market research analyst with IMS Research's consumer electronics group. "Digitization [in China] is going at a fairly rapidly pace. This is really good timing on their part," she says of Cisco's decision to buy DVN.
It also gives Cisco a competitive hedge against Motorola Inc. (NYSE: MOT) as China's digital cable market develops. Last year, Motorola made a similar play by acquiring the digital cable box assets of another China-based vendor, Dahua Digital, for an undisclosed sum.
— Jeff Baumgartner, Site Editor, Cable Digital News