Cisco Selling Set-Top Box Unit to Technicolor for $600 Million

As part of the deal, Cisco and Technicolor will enter into a strategic alliance to develop video offerings for telcos and service providers.

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Cisco Systems is usually on the buying end of deals, but at least in this instance, the giant networking vendor is the seller.

The company is selling its set-top box business to French media vendor Technicolor for about $600 million, a move that will get Cisco out of the video customer premises equipment (CPE) business and enable it to focus its efforts on cloud-delivered video solutions that can be leveraged by telecommunications vendors and service providers.

However, Cisco isn't cutting all ties with the video CPE market. In conjunction with the deal to sell its Connected Devices division, it and Technicolor entered into an agreement to jointly develop video offerings for telcos, and Hilton Romanski, senior vice president and Cisco's new chief technology and strategy officer, will join Technicolor's board of directors.

"Ten years ago we entered the set-top box business because of the role it played in our service provider customers' business," Romanski wrote in a post on the company blog. "Connected devices have delivered $27 billion of aggregate revenue to Cisco since then. This technology continues to be critical for these customers."

The new partnership with Technicolor "will also ensure Cisco remains close to this business and our service provider customers," he wrote.

The Connected Devices unit helped Cisco grow its market reach and extend its work with service providers, he wrote.

For Technicolor, the deal—which is expected to close by January 2016—will enable it to become the world's second-largest vendor in the CPE market, essentially doubling revenue to $3.3 billion. CPE includes not only TV set-top boxes, but other devices, such as networking and phone systems.

"We know that video expertise is essential to the future of creating outstanding network and home infrastructure products and services," Technicolor CEO Frederic Rose said in a statement. "Through this acquisition and strategic agreement, Technicolor can immediately bring its unrivalled experience and innovation in video creation, delivery, and display to more customers in more geographies."

Bringing in Cisco's set-top box business also helps Technicolor bolster its capabilities in the wake of the pending merger of U.S. company Arris Group and Pace, a British set-top box maker. The combined company will be the largest CPE vendor in the world.

The deal comes days before Chuck Robbins takes over as Cisco's CEO, replacing John Chambers, who sat in the big chair for two decades. Robbins will take over on July 26. In his own blog post, Robbins wrote that the deal with Technicolor is only part of a larger strategy to "prioritize and accelerate areas that are critical to our future success, make changes where needed, drive greater simplification and clarity in our business, continue our focus on operational discipline, and invest in our exceptional culture."

Another move, to bring what had been separate cloud and Internet of everything (IoE) engineering units into Cisco's larger engineering organization, is also part of the strategy, he wrote.

"We will continue to make decisions to prioritize our portfolio and our investments to accelerate our business," Robbins wrote. "Part of this on-going prioritization is ensuring we have the right talent in the right places to drive our strategy and our growth in a very fast-paced market. Some functions and geographies across Cisco are making very focused changes to quickly realign our investments to the top opportunities. A limited number of our employees will be impacted, but we will exit Q4 with our head count up and, based on our current business assumptions, expect an increase in our head count as we exit next fiscal year."