Despite its move to sell its customer premises equipment (CPE) division to French media technology conglomerate Technicolor in a deal announced last week, don't think of Cisco as leaving the video business.
"Cisco will remain the clear market leader in both video infrastructure software and video network hardware," wrote Synergy Research Group's chief analyst John Dinsdale, in a report analyzing the global pay-TV set-top market in the aftermath of the $602 million Technicolor-Cisco deal, as well as Arris' proposed $2.1 billion purchase of Pace.
With cloud-based architectures -- such as Charter's (NASDAQ: CHTR) Cisco-powered Spectrum Guide -- increasingly driving the video infrastructure market, Cisco is looking to focus on the server and software side of the business, the research company said. The Silicon Valley giant doesn't see enough profit in the mature CPE industry.
"While this clearly signals a shake-up of the video infrastructure market, the main implication is the divergence of the market into separate client hardware and network/software segments," Hinsdale added. "Technicolor will be a pure-play client hardware vendor, while Arris will generate almost 80 percent of its revenues from client hardware. There is a strong case for arguing that neither Arris nor Technicolor will be direct competitors of Cisco once the deals close."
The Cisco-Technicolor deal is expected to close by the end of the fourth quarter of 2015 or during the first quarter of 2016.
Separately, another research company, Futuresource Consulting, released more figures showing a steady decline of the global pay-TV set-top market, from a current revenue level of about $20 billion to around $17 billion by 2017.
With the set-top market's top four competitors consolidating into just two, however, Futuresource believes Technicolor has achieved the scale and regional positioning needed to thrive in a mature market.
"At $600 million, Technicolor seems to be getting a good deal -- an incremental $1.2 billion in STB sales and access to key North American cable and IPTV accounts, bringing its worldwide share up to 13 percent (15 percent of pay-TV)," said Jack Wetherill, senior market analyst in home electronics for Futuresource Consulting. "It also gets Cisco's cable modem business to complement its own Broadband CPE unit, lifting its worldwide share up to about 15 percent."
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