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August 2015

CISCO SELLS STB DIVISION TO THOMSON / TECHNICOLOR

On 23rd July 2015, CISCO declared sale of its TV Set Top Box (STB) & Cable Modem business for about Euro 550 million to French company Thomson who in 2010 assumed the name of its U.S. media division - "Technicolor."

Technicolor will pay CISCO about 75% in Cash and the balance 25% in newly issued Technicolor shares. The 'Connected Devices' business being sold has an annual revenue of $1.8 Billion.

The sale is expected to conclude by end of Cisco's Q2FY16, subject to regulatory approvals. Until that time, the Connected Devices business will continue to operate as part of Cisco.



CHAMBERS' CLEAN UP?

The announcement came just 1 week before CISCO's Chairman for 20 years - John Chambers retired. Some see the sale as a 'cleaning up' move before Chambers hands over the reins.

Incoming Cisco CEO Chuck Robins said that after 10 years in the consumer premises equipment (CPE) business it was time to hand the reins to Technicolor and focus efforts instead on video in the cloud.

Zorawar “Biri” Singh, a partner at venture capital firm Khosla Ventures LLC and a former head of Hewlett-Packard Co.’s cloud computing, has been appointed Cisco's new Chief Technology Officer.




JV WITH TECHNICOLOR

The 2 companies have also entered a partnership to jointly build and sell next-generation video and broadband technologies and cooperate on Internet of Things devices and services, along with a long-term patent cross-licensing agreement.


Both STB & Cable Modem Business Have Been Sold

CISCO - SCIENTIFIC ATLANTA

Cisco entered the STB business when it acquired Scientific-Atlanta's Cable TV business for $6.9bn in 2006. It was then CISCO's plan to create a new consumer electronics division.

Now, the STB business has been sold just 9 years later at a 90% discount!


The Business Has Been Sold At 10% Of Purchase Price

CISCO NDS REMAINS

Cisco had also bought out NDS from Rupert Murdoch for $5 Billion, in 2012.

Cisco is retaining NDS and plans to use NDS technology when delivering Video thru the cloud.


CISCO'S STB BUSINESS

Actually, Cisco has been reducing its STB & Cable Modem involvement for more than 3 years.

It stopped STB manufacturing years ago. Even custom designed Chip-Sets were abandoned to save costs. Cisco now only has a small STB design group it inherited when it bought out Scientific-Atlanta's Cable TV business.


THE US MSO MARKET

Purchases by US MSOs are huge. A few large deals can literally make or break even the largest Cable TV hardware suppliers.

Time Warner Cable Inc. (Cisco's largest STB customer), Bright House Networks and Cablevision Systems Corp. were some of Cisco STBs' major customers. However, in 2012, Samsung dropped its HD-DVR STB prices by 20%. This squeezed Cisco's margins, making the business un-attractive.

Once Cisco realised that it could not retain margins on its STBs and cable Modem sales to USA MSOs, it decided to exit.

Other large STB companies like Motorola Mobility LLC and Pace Micro Technology too were in the same boat as Cisco.

Arris which had a very strong presence in the US MSO market first bought out Motorola Mobility and its current offer for Pace will conclude shortly.


FEW BUYERS

Rumours that Cisco would sell its STB business began as early as 2012, but were staunchly denied.

If Cisco has been trying to sell its STB & Cable modem business for the past 3 years, clearly, there were few takers. This also explains the firesale price.

Asian manufacturers were strong potential customers. Huawei Technologies Co. Ltd. is believed to have been interested in buying Motorola mobility, but U.S. government scrutiny on the Chinese giant was a huge hurdle. Motorola mobility was also finally to Arris USA, which was a smaller company than Motorola mobility!


Technicolor Will Become The World's 2nd Largest STB Manufacturer

GAINS TO TECHNICOLOR / THOMSON

For Technicolor, the deal-which is expected to conclude by mid 2016, will enable it to become the world's second-largest vendor in the CPE market, essentially doubling its revenue to $3.3 billion. CPE includes not only TV set-top boxes, but other devices, such as networking and phone systems.


COUNTER ARRIS-PACE

Bringing in Cisco's set-top box business also helps Technicolor bolster its capabilities in the wake of the pending merger of U.S. company Arris Group and Pace, a British set-top box maker. The combined company will be the largest CPE vendor in the world.

Technicolor / Thomson will be the second largest.