Cisco to Acquire Video Networking Leader Scientific-Atlanta
Merger will help company address video network infrastructure and digital home markets
-/November 22, 2005 - Wi-Fi Technology News/-Cisco Systems has led the effort in bringing data, voice, and wireless communications onto the network infrastructure that is driving the digital revolution. Now, the company has taken a major step in doing the same for video.
On November 18, Cisco announced its intentions to acquire Scientific-Atlanta Inc. for $6.9 billion. The Lawrenceville, Ga., company, most famous for its cable television set-top boxes, provides an extensive portfolio of products for delivering and managing digital video over the networks of cable operators, broadcasters, and telecommunications companies. Over the last seven years, Scientific-Atlanta has shipped more than 23 million digital set-top devices, and most cable systems in North America use at least some of the company's products. Cisco and Scientific-Atlanta combined offer unmatched experience in creating the components for large-scale, Internet protocol-based video networks. News@Cisco spoke with Cisco's president and CEO, John Chambers, and Scientific-Atlanta's president and CEO, Jim McDonald, about the merger and what it means for both companies and their customers.
Why is Cisco acquiring Scientific-Atlanta?
John Chambers: Very simply, Scientific-Atlanta offers the broadest combination of digital video technologies on the market. While we have established excellent market positions for data, voice, and mobility services, Scientific-Atlanta, in our opinion, is the leader in video, the fourth part of the networking "quadruple play." Scientific-Atlanta's experience, size, reach into key markets, and its ability to create, build and maintain these kinds of networks is why we thought they would be such a great addition to the Cisco family.
Our goal is to reduce the complexity of converging data, voice, and video over IP-based networks. As we have been saying for years, an integrated architecture is the only way to reduce this complexity. Our experience in this market has shown that the more you provide a complete, tightly coordinated product line, the greater your likelihood of success in creating a compelling offering for both service providers and consumers. Scientific-Atlanta, with its great expertise and range of video delivery products, will help us offer a broader product line that will both position us better against incumbent suppliers and make it much easier for our customers, primarily telecommunications companies, to integrate video onto their IP networks.
Scientific-Atlanta is doubly beneficial for Cisco since it not only helps us address the needs of telecommunications companies that want to run the most efficient and sophisticated networks for digital video delivery, it also offers a very exciting opportunity to expand our offerings for what we call the "digital home" market. In combination with our Linksys family of products, we can cover virtually any kind of digital media technology that consumers might want in their home.
Why did Scientific-Atlanta decide to join Cisco?
Jim McDonald: The markets we serve are experiencing dramatic change. Technological change is evident in consumer services as high bandwidth is radically changing both entertainment and information services. And storage in both the network and in the set-top is having a profound effect on the television watching habits of millions of people. A fundamental change is also happening with telecommunications companies, or what we call service providers, which is our primary market. These companies cannot ignore the inevitable migration to Internet protocol, or IP, networks. Obviously, everyone is using IP networks for data and information. And for the past few years IP has proven that it is the technology of the future for voice communications. Wireless, or mobility, technologies are heavily reliant on IP as well. So we expect video will follow this pattern by also merging into the IP world. Recognizing this, Scientific-Atlanta has been a leader in developing IP technologies for the video world with consumers and service providers, as well as with "content originators," such as broadcasters. At the same time as this convergence of media onto one network, our customers are also looking to provide far more personalized or customizable services than the previous monolithic offerings of just phone or cable TV. All of these elements combined are creating a very dynamic, fast moving, and extremely promising worldwide market.
On our own, we could address much of this opportunity, but not all of it. In these increasingly competitive markets, success is related to timing. Our ability to introduce innovative products and to play on an expanding worldwide stage could not keep up with the opportunity that is in front of us. Our merger with Cisco provides us with the additional capabilities to do that.
Why focus on digital video?
John Chambers: We believe video is emerging as a key strategic component in communications and consumer media markets. The reason we believe this is that historically in the networking business the bandwidth dominant application, which is now clearly video, is the one that dictates how networks are built over the long term. Over the next two years we believe we are going to see a dramatic change in the landscape, where video will determine how telecommunications companies design their infrastructures. And as some industry observers have noted, this is already happening.
With that being said, we believe that the knowledge of how to build video-enabled and video-oriented IP infrastructures will be a critical asset for us. Networking is no longer just about data. It's also about voice, which has become one of the most vibrant markets in the IP landscape. And it's about wireless, with hotspots popping up around every corner and with public wireless services likely covering many cities throughout the U.S. in the next two years. The integration of communications on a common infrastructure is what Cisco is all about. IP has more than proven it is the best technology for that common communications infrastructure. And video is the obvious fourth chapter of that convergence. If we are to serve the customers that depend on Cisco networking technology, we need to have the industry's best minds working on the problems and coming up with answers that our customers want. Scientific-Atlanta helps us take a major step in addressing that responsibility.
How will the merger help the two companies address the consumer market?
Jim McDonald: Our set-top boxes are in millions of homes, and we count Time Warner, Cablevision and Comcast as three of our largest customers. So, in networking terms, we have doorways into many, many consumer homes. Also, our set-top boxes make an ideal platform, or central management device, for the digital home. But the digital home will be about whatever the customer wants. Some individuals might just be interested in digital video on-demand, others might have more of an interest in information-rich material combined with video, while still others might want all of that delivered on a mobile device they can carry around like a cordless phone. So, by combining our set-top box with Cisco's Linksys brand of home networking technologies, as well as with Cisco's other communications products, we can put together whatever combination of digital home services a customer might want for entertainment, information, communications, or business. We have some ideas about what consumers will most want today, but what they will want in a few years is anybody's guess. However, with the combined expertise of our two companies, we are best positioned to create the technologies that can meet those consumer demands, whatever they may be.
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