Cisco Enters The Living Room

Cisco announced today they are buying Scientific Atlanta a global leader in set-top boxes for $43 per share. Some of the reasons for this purchase are that video is becoming a bigger market for service providers and Cisco is responding to market conditions. Cisco CEO John Chambers says they have now filled in all the market spaces in the triple play space. Cisco is a leader in IP telephony and networking and now video according to Chambers. Moreover they can bring Scientific Atlanta’s products into international markets where the set-top box company was not a strong player.

For Scientific Atlanta, they think they will be able to get more business from this deal because Cisco has relationships in the telephony market that Scientific Atlanta did not have. Apparently business was lost in the past because the telephony relationships were not in place.

New services are another reason for the acquisition. Cisco said that video and IPTV are an integral part of their strategy and even though Scientific Atlanta is geographically far, located in Georgia and is larger than a typical acquisition target, it has natural synergies with Cisco and additionally there is good chemistry between the companies. Chambers joked that an additional reason for the deal is that the company had no problem understanding his southern accent.

In addition the companies have similar customer bases and the customers of both companies seem to be ecstatic about the deal based on a conference call this morning led by the CEOs of both companies.

John Chambers says that it will now be tough for competitors to match the breadth of their product offerings. Chambers says the first five  to market are generally leaders and Scientific Atlanta was number one. This leadership position is probably why Scientific Atlanta will stay as a subsidiary and not take on the Cisco name. This is similar to how the Linksys acquisition was handled.

My take on this acquisition is that it is good for the market and will put more focus on video in the market. Service providers are focusing extensively on the triple-play market and this acquisition really does give Cisco a leg up on the competition. Furthermore, the integration of Scientific Atlanta products and Linksys allows Cisco to become a leader in home networking and media as the company will now develop products that not only route packets but can manage the entertainment needs of an entire household.

I expect the Triple Play and IPTV Summits at Internet Telephony Conference & Expo this January to be even more interesting now that these two companies have given their blessing to the concept of triple-play and acknowledged the importance for service providers to consider video as an integral part of their forward –looking strategy.

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