Cisco Acquisition Targets China’s Set-Top Box Market

Cisco’s acquisition of the set-top box business belonging to Hong Kong-based DVN (Holdings) Limited drew considerable media coverage earlier today.

The deal will see Cisco part with $44.5 million of its cash hoard, with $17.5 million to be paid up front and a maximum of $27 million to be paid in the ensuing four years. Cisco expects the transaction to close in the first half of the 2010 calendar year.

As part of the deal, Cisco will strike a go-to-market partnership with what remains of DVN. The latter company will provide Cisco and its Chinese set-top box customers with middleware, advanced applications, and integration and support services.

It’s a relatively small financial transaction for Cisco, but the Chinese set-top market is large and growing. China has the largest cable market in the world, with 160 million subscribers today and projections of more than 200 million in the next three to five years.

Sales of set-top boxes are growing fast in the country. Research firm In-Stat expects a record 20 million cable set-top boxes to ship in China this year. China’s government has mandated that all subscribers adopt digital set-top boxes by 2015. While Cisco and Motorola are the world’s top two makers of the devices, another six of the top ten companies are Chinese (including Huawei Technologies), according to In-Stat.

Upon completion of the transaction, the DVN set-top box business will become a part of the International Cable Business Unit within the Service Provider Video Technology Group (SPVTG) at Cisco. That group is led by Ken Klaer.

In an email message to InternetNews.com, Klaer made the following comments regarding the acquisition:

“The set-top box business of DVN provides a strong product offering, market-leading R&D organization, and established sales force serving over 70 cable operators across China, which positions Cisco to capture a share of the expected transition of over 80 million households to digital cable over the next four years. DVN’s set-top box business will give Cisco a platform to introduce advanced set-top and other cable- and media-enabled home solutions into the China market as it matures.”

Cisco bought a set-top box market leader, Scientific Atlanta, for $6.9 billion in 2005, and it’s likely a lot of Scientific Atlanta’s technology will be incorporated into future products Cisco takes into the Chinese market.

Although localization isn’t the only value the set-top box business of DVN will deliver for Cisco, it will be among its deliverables.

Hilton Romanski, vice president of corporate development for Cisco, says Cisco will continue to be active in China:

“We’re going to continue to invest both equity as well as venture capital funding into the Chinese market … and we’ll continue to look for interesting acquisition opportunities as well.”

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