Cisco stresses set-top boxes to stay

Reports have resurfaced that Cisco is looking to sell its Scientific Atlanta set-top box business after six years, US$7 billion and razor thin profit margins, but the company says it remains committed to set-top boxes.

The New York Post ran a story Sunday, citing “a source following the situation,” that Cisco is shopping the unit around. Cisco last year sold a manufacturing plant in Mexico that made cable set-top boxes in a restructuring that gutted its disappointing consumer business.

Five thousand employees left Cisco when that plant was sold, and more than 12,000 left the company in the restructuring.

Cisco bought Scientific Atlanta in 2005 for US$7 billion as part of a major consumer video and digital home entertainment push. But last year, the products produced disappointing results and some analysts were calling for Cisco to shed the cable set-top box business.

In Cisco’s fiscal 2011 second quarter — a year ago — Scientific Atlanta cable set-top box sales were down 29 per cent. Together with other disappointing — and ultimately discontinued — consumer products like the Flip pocket videocam and Umi home Telepresence unit, Scientific Atlanta set-top boxes helped drive down product gross margin and set off the restructuring that eliminated 12,000 Cisco jobs.

But Cisco, in a blog post published Monday, says it remains committed to set-top boxes.

Cisco reported earlier this month that service provider video revenues in Q2 fiscal year 2012 grew 23 per cent from last year, to US$1 billion. Yet overall product gross margins decreased slightly from Q1 due in part to sales of lower-margin service provider video products (as well as data centre).

Nonetheless, Cisco reiterated to Wall Street analysts that it is in set-top boxes to stay.

“In terms of our set-top boxes, we are very much committed to this marketplace,” CEO John Chambers said during his quarterly conference call with analysts, a transcript of which is available on the Seeking Alpha website. “Our service provider customers asked us to partner with them as they move from the traditional set-top boxes to IP set-top boxes to the cloud in our Videoscape solution. Receptivity so far has been very, very good in terms of our strategy. We have demonstrated our capability to bring video to large volumes of any combination of devices, whether these devices are Cisco, our peers or even our competitors.”

Chambers said that sliding profitability in service provider revenue was driving them to home video services, which necessitates Cisco providing them the tools.

“This is where you get to see them excited about moving to video into the home, which is why we must be in that set-top box business,” he said during the Q2 conference call.

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