In the space of a few months, Cisco’s set-top business dropped from an annual run rate of $2.0 billion to $1.6 billion — a 20% contraction (see Cisco Cable Set-Top Sales Tumble Again).
What the heck is going on with the team from Sugarloaf Parkway?
Cisco doesn’t break out other financials for the Service Provider Video Technology Group (SPVTG), which includes the former Scientific Atlanta. But however you slice it, the last two quarters have been horrible for the cable set-top group.
Start with the fact that Time Warner Cable, Cisco’s biggest set-top customer, added just 6,000 digital video subs in the fourth quarter of 2010, noted SNL Kagan analyst Ian Olgeirson. TWC netted an overall loss of 141,000 basic subscribers.
Then there’s CableCard. The industry has taken this lemon and made some lemonade out of it.
The FCC’s billion-dollar-plus mandate forcing MSOs to use CableCards in leased devices has had the benefit of making it simpler to swap out set-top hardware suppliers. TWC, for example, has been steadily deploying Samsung boxes — cutting into Cisco’s share (see Set-Tops Break Free: The Long, Slow Liberation Of The Cable Set-Top Box).
Other factors: There was that recession, which froze housing starts and depressed the overall economy. Also, digital cable set-top growth is slowing down in the U.S., with digital penetration among MSOs at around 73.5% for the industry as of Q3 2010.
Add those all up, and Cisco SPVTG is hurting. We’ll see if the Videoscape initiative can help reverse the slide, but I’m guessing that would not even move the needle for another year or so in a meaningful way (see CES: Cisco ‘Videoscape’ To Arm Ops In Co-Opting Over-The-Top).
Of course, Motorola has had a bad stretch too, but not as fast a slide as Cisco’s experienced. Motorola Mobility’s Home segment sales were down 7% for 2010 even though it finished with a relatively strong Q4 (see Motorola Mobility’s Home Segment Q4 Sales Inch Up 1%).