Tandberg buy a major expansion for Cisco: Analyst

Cisco Systems Inc.’s Telepresence video systems, first unveiled three years ago, needed a gateway to work with other products and only appealed to large firms and service providers. An acquisition of Tandberg SA would solve these limitations, according to one analyst.

Cisco announced its offer to buy Tandberg SA of Oslo, whose products include Telepresence T3, for US$3 billion in cash after hours Wednesday. It is a friendly takeover offer, with Cisco planning to retain Tandberg CEO Fredrik Halvorsen.

“Before this acquisition, Cisco’s products were quite exceptional but they didn’t natively interoperate,” said Ira Weinstein, senior analyst and partner with Wainhouse Research LLC of Duxbury, Mass. “This is an issue Cisco has been working on resolving and this acquisition resolves it.”

The agreement to buy Tandberg is contingent upon approval from both shareholders and regulators.

Founded in 1984, Cisco has expanded through acquisitions of companies such as Scientific Atlanta Inc., which makes set-top boxes and video equipment.

That merger came with a price tag of US$6.9 billion. In March, 2007, Cisco bought conferencing vendor WebEx 2007 for US$3.2 billion.

During a conference call Thursday, executives from both Cisco and Tandberg said they plan to make their conferencing products work with each other within six months.

“We will need a couple or three months to work to implement and test” the interoperability, said Marthin De Beer, Cisco’s senior vice-president for emerging technologies.

Cisco announced its Telepresence product line in late 2006. The products – which range in price from US$80,000 to more than US$300,000 – include 65-inch plasma displays, cameras and codecs in specially-designed rooms with customized furniture, lighting and acoustics. They are designed to make it appear to users as if are sitting across a conference table from each other rather than on a video conference.

Unlike Cisco, Tandberg’s specialty has been video products for years and makes desktop video conferencing products. Earlier this year, Tandberg took on Cisco in the high end when it started shipping the Telpresence T3, which also includes 65-inch displays and 1080p cameras. But it was designed to work with other products using standards such as H.323 and Session Initiation Protocol (SIP).

De Beer said if approved, the acquisition gives Cisco the “full range of technologies and end points from the board room to the desktop.”

It will also let Cisco sell the technology to small and mid-sized firms, said Hakon Dahle, Tandberg’s chief technologist, who was also on the Web conference.

“This is a major expansion for Cisco,” Weinstein said. “They now gain access to the rest of the market,” because right now, the high-end Telepresence market is only a small fraction of the video conferencing market.

When Cisco first unveiled Telepresence in October, 2006, CEO John Chambers said during a Telepresence session with reporters that he wanted users to be able to see subtle patterns of their colleagues’ body language, and it was important for users to feel as if they are in the same room as other participants.

Weinstein said the offer to buy Tandberg and its desktop products shows Cisco officials realize not everyone needs the conference experience available with Telepresence.

“Telepresence is all about feeling as if we’re in the same room. You look as if you’re sitting across the table from me,” Weinstein said. “Video conferencing is about you seeing my face and I’m seeing your face.”

Officials from Tandberg and Cisco did not say whether they would continue to sell Tandberg’s T3 as a separate brand or whether they would use Tandberg’s technology for Telepresence products in Cisco-branded products.

“There is overlap and they have to figure out how to deal with that,”

Weinstein said, adding the overlap is “not huge.”

“They have not hit the mainstream of video conferencing, which is where Tandberg lives and breathes.”

Chambers said during Thursday’s conference the product “overlap” between the two companies is “minimal.”

Chambers added Tandberg has been good at making its products work well with video equipment from other vendors, including Sony and Polycom.

“It takes away the worry from some people (they will be) locked in” to one vendor, Chambers said.

Halvorsen said the companies will not be able to collaborate on the products until the deal has been approved.

De Beer said the companies plan to transfer two Cisco Telepresence engineers to Europe, and to send engineers from Tandberg’s Oslo and London offices to San Jose.

Weinstein does not believe there will be deep cuts in staff.

“I think it’s safe to say there are mny more synergies here,” he said. “We think there will be some efficiency reductions but they should no be massive, overwhelming cuts.”


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