Cisco gives lowdown on Scientific-Atlanta buy

Its acquisition of the set-top box maker will boost its video capabilities, Cisco says

Cisco Systems doesn’t expect its planned US$6.9 billion (NZ$10 billion) acquisition of Scientific-Atlanta to result in significant employee layoffs or integration costs, says Mike Volpi, senior vice president at Cisco’s router and service provider technology group.

On the contrary, Cisco is hoping to realise cost savings through joint procurement and increased international business once the purchase is complete, Volpi says.

“I don’t believe the integration costs are going to be high,” he says. There won’t be much in the way of layoffs, he says, citing Sierra-Atlantic’s small, focused sales force.

Cisco announced the proposed acquisition on November 18. The deal has already been approved by the boards of both companies and, subject to shareholder and regulatory approval, is expected to close next year.

Once the deal closes, Scientific-Atlanta will become a new division of Cisco’s routing and service provider technology group under Volpi’s leadership. Jim McDonald, Scientific-Atlanta’s chairman, chief executive officer and president, will report directly to Volpi. Cisco and Scientific-Atlanta are setting up a senior-level advisory council comprised of senior management from both companies to oversee the progression of the proposed acquisition, Volpi says.

Cisco has identified some opportunities for significant cost savings as it and Scientific-Atlanta have a number of common suppliers, he says.

Cisco makes almost 60% of its revenue internationally while Scientific-Atlanta, although it does have some international presence, generates the bulk of its revenue, around 70%, from the US, Volpi says. Cisco plans to use its international distribution channels to try and sell Scientific-Atlanta’s products elsewhere in the world, notably in Southern Europe and Asia to telecommunications carriers, he says.

“The networking business is in transition,” he says, with the industry’s old rationale of providing ever-increasing amounts of bandwidth to users both at work and in the home ending. “There needs to be a migration to offering rich and unique services over a broadband pipe,” he says.

Video is the next application to drive growth in networking as cable operators and telecomms companies move toward new technologies including IPTV (Internet Protocol television) — hence Cisco’s interest in Scientific-Atlanta. With the huge demands video places on bandwidth, the next generation of networks will have to built around video’s needs first, with “other applications [left] to ride on its coattails”, Volpi says.

He says while Scientific-Atlanta is best known for its Explorer set-top boxes for home use, the company is more than just a device maker and has a huge amount of expertise in broadband video in a number of areas.

“They’re not just a technology provider, they’re a primary solution provider.”

Scientific-Atlanta also provides transmission networks and an integration, consulting and support business called SciCare broadband services.

Cisco is particularly interested in SciCare, which Volpi says is “an end-to-end solution” for cable operators.

That solution set includes an array of management tools and services to help support existing broadband networks and launch new ones. “Even Cisco has a tremendous amount to learn from Scientific-Atlanta,” he says.

In the move toward IPTV, it’s vital that set-top boxes form part of an “end-to-end” system where they “behave as part of the network itself rather than some alien device that plugs in to the network”, Volpi says.

Scientific-Atlanta doesn’t believe becoming part of Cisco will negatively impact on its existing partnerships with the likes of Alcatel and Microsoft who compete directly with Cisco.

“We don’t see any change to the dynamics [of those relationships],” says Dwight Duke, corporate senior vice president at Scientific-Atlanta and its president of transmission network systems.

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