Cisco Buys Scientific-Atlanta For $6.9 Billion; Gains Entry To Millions Of Living Room

Cisco Systems will pay $6.9 billion to acquire Georgia-based Scientific-Atlantic, provider of set-top boxes, end-to-end video distribution networks and video system integration. When the deal closes, Cisco becomes a major player in digital entertainment. S-A and Motorola supply nearly all of the cable set-tops used in the U.S.; S-A has roughly 56 million devices in circulation. For years simply the annoying extra box you needed to get TV, the newest generations of set-tops increasingly are being viewed as nerve centers for the home. One example of the potential perceived by the two companies comes from the press release: “Scientific-Atlanta has platforms and technologies that enable scaling to millions of subscribers quickly and easily. This, along with the Cisco IP Next Generation Network architecture, will offer providers an open platform for service differentiation, allowing them to move beyond video/IPTV to develop and deliver a variety of integrated media services in the connected home.”
This gives Cisco, which already owns consumer-oriented network hardware company Linksys, dual-entry into the home. Cisco CEO John Chambers highlighted the combo: “The collective strength of Linksys and Scientific-Atlanta will extend Cisco’s leadership position across the entire networked digital home.” From the WSJ (sub. req.): S-A CEO Jim McDonald, whoo will stay on for two years, said demand for bundling was one of the deal’s drivers. “These customers want more complete integrated solutions from fewer vendors.”

Unlike Linksys, which has some freedom for innovation, S-A can only implement what cable operators want. No matter how nifty the notion, how great the advance, if it isn’t perceived as good for cable’s business side, it doesn’t happen. (I’m looking at a Motorola set-top box right now that has a USB port that hasn’t been enabled and may never be.) At the same time, PCs are gaining as competitors for homewide distribution of video — a deal announced earlier this week will make Windows Media Centers capable of delivering digital cable, including HDTV.

Press release
| CEO conference call
| Synergies conference call (11 a.m. eastern)

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