Cisco Systems Inc. doesn’t expect its planned US$6.9 billion acquisition of set-top box manufacturer Scientific-Atlanta Inc. to result in significant employee layoffs or integration costs, according to a Cisco senior executive. Instead, as well as adding video capabilities into its product line, the networking equipment giant is hoping to realize cost savings through joint procurement and increased international business once the purchase is complete.
“I don’t believe the integration costs are going to be high,” Mike Volpi, senior vice president, routing and service provider technology group at Cisco, said on a conference call Friday to discuss the business and technology around the proposed acquisition. He added that he didn’t think there would be much in the way of layoffs should Scientific-Atlantic become part of Cisco and he cited the set-top box maker’s small, focused sales force.
Cisco announced the proposed acquisition Friday. The deal has already been approved by the boards of both companies and, subject to shareholder and regulatory approval, is expected to close in Cisco’s third quarter of fiscal 2006.
Once the deal closes, Scientific-Atlanta will become a new division of Cisco’s routing and service provider technology group under Volpi’s leadership, he said. Jim McDonald, Scientific-Atlanta’s chairman, chief executive officer and president, will report directly to Volpi. Cisco and Scientific-Atlanta are setting up a senior-level advisory council comprised of senior management from both companies to oversee the progression of the proposed acquisition, according to Volpi.
Although Cisco has only done the first pass of looking at component sourcing, the company has already identified some opportunities for significant cost savings since the networking company and Scientific-Atlanta have a number of common suppliers, according to Volpi. Cisco garners close to 60 percent of its revenue internationally, while Scientific-Atlanta, although it does have some international presence, generates the bulk of its revenue, around 70 percent, from the U.S., Volpi said. Cisco plans to use its international distribution channels to try and sell Scientific-Atlanta’s products elsewhere in the world, notably in Southern Europe and Asia to telecommunications carriers, he said.
“The networking business is in transition,” said Volpi. The industry’s old rationale to provide ever-increasing amounts of bandwidth to users both at work and in the home is coming to an end. “There needs to be a migration to offering rich and unique services over a broadband pipe,” he added.
Video is the next application to drive growth in networking as cable operators and telecommunications companies move toward new technologies including IPTV (Internet Protocol television), hence Cisco’s interest in Scientific-Atlanta. With the huge demands video places on bandwidth, the next-generation of networks will have to built around video’s needs first with “other applications [left] to ride on its coattails,” Volpi said.
Scientific-Atlanta is best known for its Explorer set-top boxes for home use, but the company is more than just a device maker and has a huge amount of expertise in broadband video in a number of areas, according to Volpi.
“They’re not just a technology provider, they’re a primary solution provider,” he said. Scientific-Atlanta also provides transmission networks and an integration, consulting and support business called SciCare broadband services. Cisco is particularly interested in SciCare which Volpi termed “an end-to-end solution” for cable operators that includes an array of management tools and services to help support existing broadband networks and launch new ones. “Even Cisco has a tremendous amount to learn from Scientific-Atlanta,” he added.
In the move toward IPTV, it’s vital that set-top boxes form part of an “end-to-end” system where “they behave as part of the network itself rather than some alien device that plugs into the network,” Volpi said.
Everyone in the industry needs to work together to ensure that SBC Communications Inc.’s Project Lightspeed is a success, he added. A proof-point for IPTV, the project is the carrier’s $4 billion to $6 billion effort to provide fiber connectivity to 18 million U.S. homes and is now expected to be completed by the middle of 2008. Scientific-Atlanta and Motorola Inc. are supplying the set-top boxes for Lightspeed.
Scientific-Atlanta doesn’t believe becoming part of Cisco will negatively impact its existing partnerships with the likes of Alcatel SA and Microsoft Corp. “We don’t see any change to the dynamics [of those relationships],” Dwight Duke, corporate senior vice president at Scientific-Atlanta and its president of transmission network systems, said on the Friday call.