Cisco Systems has agreed to acquire set top box manufacturer, Scientific-Atlanta, in a deal valued at $US6.9 billion.
The combination offers Cisco the fourth component of what the company is calling a quad play - data, video, mobility and voice convergence.
"Video is emerging as a key element in the service provider's quad play," Cisco's president and chief executive officer, John Chambers, said. "In fact, video may be the most critical in this bundle for consumer loyalty."
Cisco already has products that let service providers deliver data, voice and mobility. Scientific-Atlanta, a maker of cable set-top boxes, adds the video component.
By integrating Scientific-Atlanta's set-top boxes with router products from Cisco's Linksys group, Cisco could make a unique converged offering to the market, Chambers said.
"The opportunity for Cisco is to reduce complexity for users," he said. "An integrated architecture is in our opinion the only way to reduce complexity."
Industry observers agree. A single device includes cable TV capabilities, a cable modem, wireless LAN, VOIP and potentially even high-definition TV, would be valuable, a research manager at IDC, Peter Hulleman, said.
Cisco already has many of these technologies.
A single device might make it easier for users to download movies from the Internet and watch them on their televisions, for example, Hulleman said.
With the backing of Cisco, Scientific-Atlanta was in a better position to pursue opportunities in a changing marketplace, chairman, president and chief executive officer of Scientific-Atlanta, Jim McDonald, said.
Cable companies were moving toward a new architecture that allows them to deliver video and voice services over converged networks, he said.
At the same time, telephone companies are making offerings in the entertainment market. Both markets wanted integrated solutions from fewer vendors, McDonald said.
"This dynamic environment has tremendous potential for us but we need more resources to capture the opportunity in these expanding markets," he said. The Cisco acquisition would enable that, McDonald said.
As part of the deal, Cisco will pay $US43 in cash per Scientific-Atlanta share. Cisco expects the acquisition to close in the third quarter of its 2006 fiscal year. The deal has been approved by the boards of both companies.
Scientific-Atlanta will become a division within Cisco's routing and service provider group and will operate as a separate business.