Enterprise networking giant Cisco Systems Inc. leapt into the home video equipment market with the acquisition last week of cable set-top box maker Scientific-Atlanta Inc. for $6.9 billion.
Because Cisco will assume some outstanding options, the all-cash deal is actually worth about $5.3 billion.
Cisco officials said the deal will let the company serve both cable operator and telecom customers that are looking to offer voice, data, wireless and video services.
"Video is emerging as a key element in the service provider quadruple-play bundle," said John Chambers, CEO of Cisco, in San Jose, Calif.
"Our cable customers are now moving to new network architecture to allow for voice, video and data services over a converged network," said Jim McDonald, chairman and CEO of Scientific-Atlanta, in Lawrenceville, Ga. "We are taking an extraordinary, successful company and enhancing its success."
A leader in the cable TV equipment market, Scientific-Atlanta will give Cisco not only set-top boxes but also satellite transmission technology and systems integration expertise, Cisco officials said, stressing that these things are important to both cable and telecom customers.
"For a service provider, video is absolutely fundamental," said Mike Volpi, senior vice president of Ciscos routing and service provider technology group.
"The next-generation networks will be built with video in mind first."
While Scientific-Atlanta will operate as a separate division within Cisco, Volpi said Cisco will be able to amalgamate its existing networking technology into the acquired companys equipment.
Cisco expects IP television to be a $9.9 billion market by 2009.
"For many of our customers, the transition to IP-oriented video is ahead of them," said Michael Harney, general manager of subscriber networks at Scientific-Atlanta.
Cisco is not new to the home computing market. The company paid $500 million for consumer-level networking equipment maker Linksys Group Inc. in March 2003; Linksys runs as a relatively independent unit within Cisco.
This past July, Linksys bought Kiss Technology A/S, a Danish maker of Internet-enabled DVD players, for $61 million.
Linksys product line includes Wi-Fi hardware, and Volpi said Cisco is looking into integrating Wi-Fi into its IP TV strategy.
The Scientific-Atlanta deal does fly in the face of what Cisco officials have recently said about the companys acquisition strategy.
"Our consistent story is that our preferred acquisition strategy is to buy small, high-tech, private companies that have management teams with a similar vision," Charlie Giancarlo, Ciscos chief development officer, told eWEEK in August.
Scientific-Atlanta is neither small nor private. But Chambers defended the deal as a logical move in the companys decision to enter a burgeoning market.
"When you move into a market you either partner or acquire," he said. "While weve acquired a lot of companies, I potentially put Scientific-Atlanta into the top four if we execute well."