Cisco quits set-top boxes and reshuffles IoT and cloud organisation

The networking sector lynchpin ploughed into the consumer video market after CEO John Chambers, in a rare blunder, became convinced that it was the future for the company and invested not only in the Scientific Atlanta set-top box unit but also Pure Digital, makers of a now largely forgotten video camera called the Flip.

As part of the deal both firms will enter into a partnership focused on video and broadband development, with Cisco taking around £96m worth of newly issued Technicolor shares.

“This is the right time and we have the right company in Technicolor to drive the future of the CPE business to deliver what our customers and partners need, today and into the future”.

Hilton Romanski, Senior Vice President and Chief Strategy Officer of Cisco (who will join Technicolor’s Board of Directors) notes that passing the division to Technicolor will improve Cisco’s non-GAAP margins by one per cent.

French media and entertainment technology group Technicolor said on Thursday it had signed an exclusive deal with Cisco to buy its home equipment business for 550 million euros ($602 million) in cash and stock.

“Ten years ago we entered the set top box business because of the role it played in our service provider customers’ business”, Romanski explained in a company blog post. Technicolor also expects the deal to represent €3bn of pro-forma revenues in 2014 (Cisco said its Connected Devices business will end fiscal 2015 with revenue of approximately $1.8 billion), doubling Technicolor’s revenues in its Connected Home segment, and expects synergies via the deal to exceed €100 million per annum.

In its most recent quarter, Cisco generated some $871 million with its video service provider business, compared to $961 million a year ago. “This technology continues to be critical for these customers”.

Cisco will continue to refocus its investments in service provider video towards cloud and software-based services businesses.