Friday, November 18, 2005

Set-Top News: Cisco Buys Scientific-Atlanta

Earlier this morning, Cisco Systems acquired Scientific-Atlanta for $6.9 billion. Scientific-Atlanta is one of the two world leaders in the set-top box market, along with Motorola. The acquisition instantly turns Cisco into a pivotal player in the cable industry.

In 2003, Cisco acquired Linksys, which was (and continues to be) the leader in networking equipment for SOHOs (small offices/home offices.) While Linksys’s products appeal to technically-oriented users, it has had problems penetrating the home entertainment market. Scientific-Atlanta gives Cisco entrée into home entertainment with a huge installed base (S-A has already shipped 2.6 million high-definition set-top boxes.)

I expect that Cisco’s networking expertise will start getting built into S-A’s products as soon as the acquisition is finalized. A good deal of technology is likely to be shared between S-A and Linksys, with S-A building “ruggedized” versions of products for cable operators and Linksys building consumer-grade versions for sale at retail. Cisco is also acquiring S-A’s cable infrastructure products, which will enable them to supply end-to-end solutions to the cable industry for the first time.

Look for some very interesting announcements as early as the Consumer Electronics Show in January, and major product & strategic announcements at the National Cable Television Association’s (NCTA) national conference in April. In short, this is very big news. The 900 pound gorilla of the networking business is about to become at least a 400 pound gorilla in cable.

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