ACG Research

ACG Research
We focus on the Why before the What

Friday, July 27, 2012

Cisco's NSD Acquisition: Adding It Up

ACG Research estimates that the total addressable market (TAM) for  NSD grew nearly 8% in 2011 to a total market size of over $9B in 2011. The market is expected to grow more than 6% to almost $10B in 2012. Although not double-digit growth, this growth is faster than Cisco’s existing video and broadband hardware markets. The SP Video Infrastructure and CPE Hardware market grew 1% in 2011 and is expected to grow to nearly 5% in 2012. The Broadband Infrastructure and CPE Hardware market grew almost 2% in 2011 but is expected to decline 2% in 2012.

Cisco’s acquisition of NSD has several positive attributes: 1) it puts the company into the faster growing and higher margin software side of the video market; 2) gives Cisco a large book of business recurring and service revenue; and 3) offers greater penetration of MSO accounts outside of the US.

Note: ACG defines the TAM for NSD as the software and related services that drive video broadcast video. ACG divides the market into four basic segments:
  • Middleware for STBs and other devices
  • Headend/back office: ingest, encoding, scheduling, entitlement management, workflow management, ad management and insertion
  • Security: CAS and DRM software, hardware chips, and CAS services 
  • End-user Software: EPG, IPG, DVR functionality
For more information about ACG Research's video services, click here.

David Dines

Thursday, July 26, 2012

CTO Telecom Summit

Interested in how the mobile transformation is currently affecting the telecom industry? Then join Ray Mota at CTO Telecom Summit in Scottsdale, Arizona, September 16-18.

Ray will deliver opening and closing remarks and moderate a panel, CTO Executive Visions, Next Generation Analysis: Big Data Promise or Pipe Dream? Ray will discuss Big Data topics that relate to the end-user. He will also moderate a pre-conference Exclusive CTO Think Tank panel alongside Andy Baer, former CIO of Comcast Cable and Graphene Consulting.

Why should you attend?  It's your opportunity to network with leaders in the industry, exchange ideas, make new business contacts, engage in what is certain to be lively discussions, attend interactive, in-depth education sessions and learn about new technology solutions.

For more information about the agenda click here.  

Wednesday, July 11, 2012

Building the Case for Software Defined Networking for Metro Networks

In his FierceTelecom article, Michael Kennedy discusses software defined networks (SDN) and metro network virtualization efforts and how service providers can utilize SDN architecture in their metro networks to reduce OpEx and CapEx and increase service velocity. Click to read the article.

Click for more information about ACG Research's business case analysis service or contact

Michael Kennedy

Tuesday, July 10, 2012

Google Acquiring Motorola: Mash-up or Crash-up?

(Note: This post was originally posted in August 2011.) The big news rocking the wireless, handset, tablet market is Google’s bold bid for Motorola Mobility Inc. This is excellent news for Motorola Mobility’s (MMI) investors and MMI’s shareholders who were faced with the prospects of a long slog of an unprofitable business in an unrelenting competitive environment. However, the long-term prospects for Motorola as a Google company look pretty dim.

It’s about patents
The primary driver of this acquisition is the patent portfolio. It seems that much of the fight over mobile is going to be over patents, and Google needs to shore up this weakness. Google is moving to a vertically integrated business model, which would enable it to increase margins and revenues in the mobile business. Google can now make money on the hardware, the Android ecosystem. Additionally, in-house hardware expertise should result in faster development and more robust software. If it succeeds in taking Apple’s basic business and adding a degree of openness, Google could become the master of the mobile universe, which would enable it to charge premium pricing.

The acquisition will succeed in giving Google a solid patent portfolio for waging both offensive and defensive IP legal battles. However, given the amount of money paid, Google needs to get more than just a patent portfolio. Google also acquired a mobile device manufacturer and a cable TV equipment company (the Home division sells set-top boxes, cable modems, CMTS, optics, QAM and other network gear).

Clipping Android’s wings
As a mobility play, this acquisition makes as much sense as Microsoft buying Dell. There is a very high risk of alienating the other vendors, because the temptation to play favorites will be too great. Even if there is no actual favoritism, the appearance of preferential treatment will be enough to create issues. Google just gave all the Android ecosystem partners a compelling reason to execute plan B and start evaluating overtures from Microsoft. Do not expect to see any company shift strategies in the short term, but the long-term growth trajectory of Android just got clipped.

The mobile handset market is a low-margin business with tremendous risk, especially if a product does not sell as expected and heavy discounting is required to move inventory. MMI’s gross margin in Q2 was less than 26 percent and that includes the approximately one-third of its business from the Home division, which has much higher margin products and for which they pay nothing for Android licensing.

Google also has not been very successful in consumer hardware: the Google Nexus One failed, the Nexus S seems to be lost in a crowded field and Google TV is on the ropes (currently returns are exceeding sales of the Logitech Revue, see WSJ article). With this track record, it will be interesting to see how well Google competes in this market.

Clash, bottlenecks, delays
From a culture and operations perspective we would expect major assimilation issues and major delays in key decision-making. Cultures and bureaucracies will certainly clash, which will contribute to bottlenecks and delays in product development and delivery. It will be interesting to see new hardware designs from the combined companies, as designers try to please two masters.

This acquisition puts more pressure on MMI’s Home division; it is a great opportunity for competitors to take more business from Moto and accelerate its share decline. The Home business seems to get less attention from Moto management than its sexier sibling, and the uncertainty and distraction from the acquisition will exacerbate this situation. The Google name may be great with consumers, but not with service providers. Service providers already distrust Google because of its stance on net neutrality and its 1G FttH project. Furthermore, Google is trying to muscle in on their main source of revenue with OTT (and have a direct relationship with the customer, excluding the SP). If Google can get over these hurdles, it has to sell its vision and fight the perception of putting out half-baked software and putting little effort into customer support.

Regarding business models, there are dangers in trying to chase Apple at a game that it has spent decades perfecting. While imitation is a sincere form of flattery, it is a bad business strategy for most companies. Bottom line, other than getting a decent patent portfolio, this deal is not going to be worthwhile for Google.

David Dines