Cisco Shifts Set-Top Strategy


Looking to buy some cheap set-top boxes? Cisco Systems may not want your business.

As the company sharpens its focus on pro- viding software to TV operators, Cisco is "walking away" from bids for low-end set-tops, particularly in Europe, chairman and CEO John Chambers told analysts last week.

"We are driving the transition to more software video solutions and have been more selective in the business we are taking in terms of set-top boxes, and the lowest-margin set-top box business in particular," Chambers said on Cisco's quarterly earnings call.

European set-top revenue for the quarter ended Jan. 26 was down "dramatically" because of the change in focus, Chambers said: "If it's purely a bid that is on very, very poor margins, we are not even going to bid."

Cisco's service-provider video segment generated revenue of $1.22 billion for the quarter, up 20% versus the year-earlier period. However, that was entirely attributable to NDS, the pay TV security and software solutions vendor Cisco acquired last year, Chambers said. Total sales to service providers worldwide fell 1% for the quarter.

The integration of NDS has been proceeding "what feels to me at the speed of light," Marthin De Beer, senior vice president of Cisco's Video and Collaboration Group, said in an interview last week.

The company assembled a team of 30 technical leaders from NDS and Cisco to work on a merged architectural approach immediately after the deal closed last July. That culminated in the Videoscape Unity platform, which Cisco launched at the 2013 International CES. 

Cisco has now "on-boarded" most of NDS's European employees, and De Beer expects the process to be completed for all 5,500 former NDS workers by mid-2013. 

For now, Cisco is keeping NDS's services and sales teams intact, De Beer said, "so we don't try to suck a software business into a hardware model, which the rest of Cisco operates in. We're being very thoughtful about that." 

Chambers, on the earnings call, cited new deals with AT&T and Cox Communications in the most recent quarter. Historically, service-provider sales are "lumpy," he said. It's not unusual for Cisco to receive a $100 million order from a service provider in a given quarter, which may represent half its business with the vendor for the year, Chambers said.

"We'll get our fair share of spend, and then some," Chambers said, citing Comcast, Time Warner Cable, AT&T, Verizon Communications and Sprint as major customer accounts. 

For the January quarter, Cisco posted total revenue of $12.1 billion (up 5% year over year) and net income of $3.1 billion, up 44% from $2.2 billion in the year-earlier period.