Cisco Systems has agreed to acquire Scientific-Atlanta Inc. in a deal valued at US$6.9 billion ($NZ10 billion), it announced on Friday.
The combination offers Cisco the fourth component of what the company is calling a quad play —data, video, mobility and voice convergence.
"Video is emerging as a key element in the service provider's quad play," says John Chambers, Cisco's president and chief executive officer. "In fact, video may be the most critical in this bundle for consumer loyalty."
Cisco already has products that let service providers deliver data, voice and mobility. Scientific-Atlanta, a maker of cable set-top boxes, adds the video component.
By integrating Scientific-Atlanta's set-top boxes with router products from Cisco's Linksys group, Cisco can make a unique converged offering to the market, Chambers says. "The opportunity for Cisco is to reduce complexity for users," he said. "An integrated architecture is in our opinion the only way to reduce complexity."
Industry observers agree. A single device includes cable TV capabilities, a cable modem, wireless LAN, VoIP (voice over Internet Protocol) and potentially even high-definition TV, would be valuable, says Peter Hulleman, a research manager at analyst IDC. Cisco already has many of these technologies. A single device might make it easier for users to download movies from the internet and watch them on their televisions, for example, Hulleman says.
With the backing of Cisco, Scientific-Atlanta is in a better position to pursue opportunities in a changing marketplace, says Jim McDonald, chairman, president and chief executive officer of Scientific-Atlanta. He says cable companies are moving towards a new architecture that allows them to deliver video and voice services over converged networks. At the same time, telephone companies are making offerings in the entertainment market. Both markets want integrated solutions from fewer vendors, he says.
"This dynamic environment has tremendous potential for us but we need more resources to capture the opportunity in these expanding markets," McDonald says. The Cisco acquisition will enable that, he says.
As part of the deal, Cisco will pay $US43 in cash per Scientific-Atlanta share. Cisco expects the acquisition to close in the third quarter of its 2006 fiscal year. The deal has been approved by the boards of both companies.
Scientific-Atlanta will become a division within Cisco's routing and service provider group and will operate as a separate business.