French media technology conglomerate Technicolor has agreed to purchase Cisco's customer premises equipment (CPE) division for $602 million, a move delivers a second burst of consolidation to the fast-declining pay-TV set-top industry.
The deal combines the Nos. 3 and 4 set-top makers, creating what will be the second biggest CPE company next to the newly combined Arris and Pace, pending regulatory approval of both deals. Technicolor's combined unit will control around 15 percent of the market for pay-TV set-top boxes, routers and switches, compared to about 25 percent for Arris-Pace.
In a separate transaction, the UK's Amino Technologies agreed to pay $73 million to acquire Cupertino, Calif.-based Entone. Both companies manufacture IP-only and hybrid IP/QAM set-tops and gateways. Entone counts the likes of Home Telecom, Three River Telco, TIM Brasil, Zazeen and others as customers. Amino said Entone scored revenues around $47 million during the 11 months through May 31 of this year.
Cisco's move to sell its set-top business comes at a time when the global set-top market is in steep decline. Global shipments of pay-TV set tops reached just $15.3 billion in 2014, down nearly 4 percent from the $15.9 billion in sales reported in 2013, according to research firm IHS.
"For Cisco, it gives them a way out of the STB market, which has become increasingly less profitable and no longer fits Cisco's strategy of focusing on network and cloud infrastructure," Jeff Heynen, senior principal analyst within the IHS Technology group, told FierceCable following the announcement of the Technicolor/Cisco deal.
"Because of its outsized influence on the service provider video business unit, the STB declines overshadowed the growth in [Cisco's] Videoscape portfolio," he added. "Now the service provider video segment becomes higher-growth and more in-line with Cisco's and Wall Street's expectations for the company."
Meanwhile, the deal gives Technicolor an instant market share boost in North America, Heynen said. Specifically, acquiring Cisco's business would give Technicolor a position with leading cable operators including Comcast (NASDAQ: CMCSA), Time Warner Cable (NYSE: TWC) and Charter Communications (NASDAQ: CHTR). Cisco created the architecture to Charter's World Box platform, for example.
"The key to the STB and CPE markets is scale," Heynen said.
For more:
- read this Technicolor press release
- see this Amino release
- read this Reuters story
Special Report: Why the once-great pay-TV set-top box market is now in retreat
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