Cisco won't sell low-end set-tops as it transitions to the cloud

Cisco (Nasdaq: CSCO) is rethinking the way it wants to sell set-top boxes, preferring an IP-based model with software and features integrated into the cloud, Chairman and CEO John Chambers said in an analyst call Wednesday to discuss the company's most recent quarterly earnings.

"We are walking away from the low volume, very poor margins set-top business," Chambers said, noting that the company is moving toward the Videoscape TV Everywhere model integrating features of NDS software and functionality into an ever-growing cloud presence.

Videoscape, he said, has attracted "major new alliances with AT&T (NYSE: T) and Cox [Communications]" and has proven to be the profit-maker that the company needs going forward as its base of service provider customers evolves from traditional broadcast video platforms to unicast, multiscreen services. Rather than react to market changes, he said, Cisco is pushing the flow.

"We continue to drive a transition in our service provider video business driven by the integration of NDS, evolving from a low-margin set-top box business to more of a profitable and strategic Videoscape architecture in the cloud," Chambers explained.

Sales numbers that were down "dramatically year-over-year" along with a "lumpy" service provider business and the integration of cloud software from NDS is "driving our business in the cloud, moving from set-top boxes to more valuable and profitable software and service offerings," Chambers said.

Even setting course in that direction, however, doesn't necessarily mean everything will go smoothly for Cisco's multiple service provider-dependent business lines, he conceded.

"Our relationship with service providers is excellent, it is just lumpy," Chambers insisted. "As you would expect I have talked to many of the top CEOs in our service provider customers [and] more and more dollars are moving to mobile, so our ability to combine fixed and mobile uniquely together is extremely strong," he said. "In terms of whether you are at AT&T or Verizon or sprint, Comcast or Time Warner, we've never been in a stronger position than we are."

And that strong position, he emphasized, is because of NDS, which accounted for 20 percent of service provider video business.

For more:
- Seeking Alpha has this earnings call transcript

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