ACG Research

ACG Research
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Wednesday, February 22, 2012

Should Cisco Sell Its STB Business?

Rumors are spreading about Cisco wanting to unload its STB business because of shrinking margins and slow growth. If you asked me a year ago, I would have told Cisco to exit the business because of the entry of low-cost offshore competitors, the threat of OTT and likelihood that STBs would become irrelevant as consumer electronic devices (connected TVs, iPads, and game consoles) are able to stream video.

Now, I see the business a little differently. It is possible that the decline of the STB business will be slower than we think. Even as connected TVs, game consoles and tablets grow, the older sets will still need an STB device to get the content. Even with shrinking revenues and margins, the cash flow should be pretty healthy given that much of the investment has been written off. It also allows Cisco to continue to be a strategic partner and maintain a high share of spend with the MSOs and Telcos. Keeping the business would allow Cisco to retain the video engineering expertise, which is no doubt sizable and will be needed for developing new hybrid/VideoScape products.

Practically, can Cisco get anything above a fire-sale price given the slow growth forecasts for STBs? Finding a buyer will be tricky, since there are only a small number of companies that have the resources and strategic fit to want to bid on it.

Cisco has publicly stated that it does not have plans to sell its STB business, but going forward the company will have to see how fast and at what point they transition to a more profitable VideoScape strategy.

David Dines

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