Box Makers Optimistic About 2003, Despite Cutbacks

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Despite the looming reality cable operators will cut back capital expenditures in 2003, box makers hit hard by the industry downturn are not necessarily counting on a gloomy year for purchase orders.

Among the box makers, the outlook very much depends on their position and strategy.

For Pace Micro Technology plc, which is just now gaining a foothold in the U.S. markets, there is room for optimism since it is starting mostly from scratch. The British box maker has already started shipping set-tops to Time Warner Cable, and has a box deal with Comcast, with plans to start shipping units in mid 2003.

"The only way for us is up," said Neil Gaydon, president of Pace's Americas unit.

Other box makers don't see a clear link between dwindling cable capex and a potential drop in box orders. Based on operators' third-quarter digital TV subscriber numbers, "a lot of them are at really nice penetration levels, and they are continuing to grow those penetrations. And it looks like the number of additional outlets in the home is growing," according to Motorola Broadband Communications Sector director of strategic marketing Bernadette Vernon.

Still, to address the reality of tight budgets, Motorola recently rolled out the DCT-1700 — a less expensive version of its basic DCT-2000 box — aimed at secondary television sets in the home, and the Digital Convergence Platform 501, a combination MP3/CD audio and DVD video device with built-in DCT-2000 capabilities aimed at a retail distribution.

The latter may become a first step for MSOs wanting to lighten their box inventory load while still fueling digital cable uptake.

Motorola has a deal with Cox Communications Inc. to distribute the DCP in Hampton Roads, Va., through two local audio-video dealers. The unit retails for $899.

With expenditures eyed carefully, the pressure increases to produce boxes with the same functions but at a lower cost. One way to do that is to integrate more box functions directly onto silicon, dropping the number of components needed, and therefore lowering the overall price. Pioneer Electronics Inc. has taken that approach with its Voyager 3000 box, which cuts the number of chips compared to the older Voyager 1000.

"What we used to do with seven or eight chipsets now we can do with one," said Neil Jones, Pioneer's senior vice president of operations.

Dave Davies, director of strategic marketing for subscriber networks for Scientific Atlanta Inc., thinks operators will invest in boxes during the coming year — particularly high-end high-definition and digital video recorder units — to drive in extra revenue, he said.

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