Cisco Aims At China's Cable Market With Set-Top Acquisition

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Cisco Systems has agreed to acquire the set-top business of Hong Kong-based DVN, a provider of digital cable solutions to the Chinese market whose investors include Motorola, in a deal worth up to $44.5 million over the next four years.

In addition, Cisco has entered into a go-to-market alliance with the remainder of the DVN organization to use its middleware, advanced applications, and integration and support services. "Cisco and DVN have similar cultures that emphasize video innovation and a shared vision to enable multimedia connected homes across China," said Ken Klaer, vice president and general manager of Cisco's international cable business unit, in announcing the deal.

While cable set-top shipments worldwide are projected to fall 6% in 2009, unit shipments in China are projected to set another record in 2009 to nearly 20 million set-tops, according to research firm In-Stat.

The Chinese cable market -- currently the largest in the world, with about 160 million subscribers -- is predicted to grow to as many as 200 million subscribers within the next five years. The Chinese government has mandated the end of analog TV broadcasts by 2015; currently, only about one-third of the market has converted to digital cable.

In its 2008 annual report, DVN said 2.4 million set-tops used its solutions last year -- a 25% decrease from 3.2 million in 2007. Citing "the global financial tsunami" and increased competition, the company said consolidated revenue for the year ended December 2008 declined 23%, to HK$759.8 million ($98 million), and net profit fell 19%, to HK$92.9 million ($12 million).

DVN had 736 employees at the end of 2008 (compared with 793 in 2007), and 671 of those were based in mainland China.

Motorola holds a 15.4% stake in DVN, according to the company's annual report.

Under the terms of the agreement, Cisco will pay up to $44.5 million for DVN's set-top box business, of which approximately $17.5 million will be paid upfront and an additional maximum amount of $27 million will be paid over four years based on the achievement of specific sales milestones.

The acquisition is expected to close in the first half of calendar year 2010 subject to standard closing conditions, approval by DVN shareholders and regulatory approvals.

When the deal closes, the DVN set-top box business will become a part of Cisco's international cable business unit within Cisco's Service Provider Video Technology Group (SPVTG). The unit's operations will be run end-to-end from within China, including design, sourcing and logistics through to marketing, sales and service. DVN will continue to be led by CEO Terry Lui.