The Internet of Things (IoT) has given Cisco an excuse to make a move that’s been expected for years: get rid of its set-top box business.
Late Wednesday night, California time, Cisco announced it was selling the business — more formally called the customer premises equipment (CPE) business — to Technicolor for €550 million ($600 million) in cash and stock.
Technicolor, formerly known as Thomsen, is a publicly traded French company focused on video and home networking. It’s a force in the set-top box business, particularly in Europe.
There’s a connection here to network functions virtualization (NFV), because the virtual CPE is an odds-on favorite to be among the first widely deployed examples of NFV. Cable companies or broadband service providers would be happy to virtualize the set-top box. It would let them send generic hardware to customers’ homes while keeping all intelligence in the cloud, which in turn would make for easier and faster service changes.
That model is well suited to Cisco’s big talk about IoT and cloud applications. Assuming the Technicolor deal goes through, that’s where Cisco’s video focus will be: “to deliver on our strategy of video in the cloud,” as CEO John Chambers says in a prepared statement about the sale.
Cisco would also become a partner with Technicolor in helping it position the CPE business and develop IoT-based video services, Cisco’s release notes. The companies have signed a long-term licensing agreement covering the patents and intellectual property relevant to the deal.
The amusing thing here is that for years, analysts have asked why Cisco bothers to stay in the set-top business. The margins aren’t terrific, and Cisco already backed out of other consumer products, including the Flip camera and a home telepresence system called Umi, both scrapped in 2011.
But as of 2012, Cisco was still seeing growth in the set-top business. At the time, Chambers also claimed that certain service providers considered set-tops vital to their relationship with Cisco.
Cisco’s thinking has changed as the cloud has gained prominence. In May, on the conference call for Cisco’s third-quarter earnings, Chambers noted that set-top boxes were “tactical” but that the cloud “is clearly where we want the revenue to go” when it comes to service provider video.
The deal, consisting of €413 million ($450 million) in cash, partly financed by new debt, and about €137 million ($150 million) in newly issued stock, is expected to close in the fourth quarter of 2015 or the first quarter of 2016. Hilton Romanski, Cisco’s chief strategy officer, would join Technicolor’s board.