Cisco to Buy Scientific-Atlanta

Today’s lead story was going to be about Jones International Academy’s acquisition of NCTI, an important deal that bears upon training issues that we follow closely. (See today’s letters.) Then came the 8 a.m. alert last Friday for a press conference featuring the CEOs of Scientific-Atlanta and Cisco. We’ll return to JIA/NCTI next week. For now here’s our quick take on the Cisco plan to acquire S-A. Is this a big deal? Yes. Net S-A’s own pile of cash, the top line number of $6.9 billion drops to $5.3 billion, but this is still big. According to S-A CEO Jim McDonald, it represents a 40 percent increase in S-A’s enterprise value, as measured against the mark set on Oct. 27, right before rumors of a deal began circulating. In terms of strategic purchases, Cisco CEO John Chambers said it could end up among the company’s top four, in the company of Crescendo Communications (work group switching solutions, 1993), StrataCom (ATM and frame relay WAN switching gear, 1996) and LinkSys (wired and wireless networks for home and small office, 2003). What happens to S-A? Cisco won’t comment on how it will brand and integrate S-A until after the close (set for Cisco’s 3Q next year), but Cisco’s relatively hands-off treatment of LinkSys bears watching. Chambers referred to LinkSys repeatedly in his comments, in part because of the consumer electronics angle. S-A also takes Cisco into the home, as well as into video headends and video systems integration, and S-A has considerable brand value, arguably more than LinkSys. Whatever the name, the S-A business that will become part of Cisco’s routing and service provider network division has already transformed itself. Perhaps discomfortingly so: CableFAX Daily columnist Paul Maxwell wrote yesterday that in light of S-A’s pending manufacture of Cisco set-top boxes for SBC: "Ain’t nothin’ sacred no more." Which side are you on? But with some of S-A’s smartest engineers building SBC’s two super master video headends, cable’s dear friends in Lawrenceville, Ga., have already (and sensibly) become arms vendors. In a second conference call on Friday, Michael Harney, S-A SVP and president of subscriber networks, said that his group dedicated to IP set-tops has been outperforming the traditional set-top business in terms of RFPs "by a factor of 10." S-A’s Dave Davies, who works for Harney, confirmed that the set-top group has been busy on the telco side. "We’ve been getting a tremendous amount of interest and RFPs, quite a bit from international customers that are looking for established product solutions," he said. Next-Gen or end-to-end? Given cable’s migration toward a future filled with OCAP, switched digital broadcast, advanced codecs, advanced DOCSIS (about which Cisco knows a thing or two) and next-generation, on-demand technologies, Davies said there is yet work to be done on the MSO side of the house. Harney noted that S-A is in co-chair positions of at least three committees on cable’s next-gen initiatives. More talk on Friday, however, was directed toward "service providers" than MSOs. "A lot of customers are looking … for a complete solution from one single vendor," said Suraj Shetty, Cisco director of marketing for the service provider network. In time, these (telco) customers will look "best-of-breed," he continued, but for now what’s needed is a "comprehensive, end-to-end video solution." This is interesting: While telcos head toward a first-gen, one-stop shopping approach to getting video done now, cable operators are crafting third or fourth generation implementations that are already best-of-breed. Whether telcos can leapfrog cable’s next gen with their own integrated ADSL2+ or other approaches is a big question. Another is whether the Cisco-S-A deal advances or retards what one veteran in telco’s IPTV R&D trenches said is a crying need for standards (for more, see the current issue of Communications Technology http://www.ct-magazine.com/archives/ct/1105/1105_iptvthe.htm). We’ll be interested in hearing answers. – Jonathan Tombes