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Cisco preps for Scientific-Atlanta integration

Net gear giant works toward completing acquisition and launching a consumer electronics business.

A correction was made to this story. Read below for details.
As Cisco Systems closes the books on its latest quarter, the company is preparing to integrate gear from its Scientific-Atlanta acquisition into its product portfolio and launch a new consumer electronics division.

The company, known for selling Ethernet switching and Internet Protocol routing equipment to large companies, announced results Tuesday from its fiscal second quarter. Profits fell slightly, but the company increased its revenue 9.3 percent from the previous year to $6.63 billion.

During the conference call with investors, Cisco executives gave a glimpse of what to expect from the $6.9 billion acquisition of cable TV equipment maker Scientific-Atlanta, which was announced in November.

The acquisition is expected to close sometime in the company's current quarter, which ends April 29. Chief Financial Officer Dennis Powell said he expects that Scientific-Atlanta products will contribute about $250 million to Cisco's overall revenue in the current quarter, depending on the exact date that the acquisition closes.

By the fiscal fourth quarter, which will be the first full quarter of revenue from the acquisition, Scientific-Atlanta is expected to contribute about $525 million in revenue. While the new products will provide a healthy source of revenue for Cisco, it is only a drop in the bucket compared with the company's total quarterly revenue of $6.6 billion. Powell also said he expects Cisco's revenue to continue growing between 10 percent and 15 percent for the year.

The close of the Scientific-Atlanta acquisition comes as Cisco prepares to launch a series of new products in the consumer electronics market. Initially, these products will be based on technology acquired from Scientific-Atlanta and from Kiss Technologies, a European start-up Cisco acquired last year.

Cisco introduced at least one new home entertainment product, the Kiss DP-600, at the Consumer Electronics Show in Las Vegas last month. Right now the networked DVD player is available only in Europe, but a comparable product is expected to be released in the United States later this year, according to Charles Giancarlo, Cisco's chief development officer.

The Scientific Atlanta purchase is an important step in jump-starting Cisco's video expertise, especially in the U.S. where the majority of homes subscribe to TV from cable companies. But Giancarlo acknowledges that the company still needs to fill in some holes in its product portfolio.

"Scientific-Atlanta addresses the U.S. cable market," he said during an interview after the earnings call. "But most of the rest of the world doesn't have this infrastructure, and they don't have networked video (devices) available to play video on demand or record content. We see this as a huge opportunity."

When asked whether digital video recorder company TiVo could help Cisco reach this market, Giancarlo coolly dismissed rumors that Cisco might buy the company.

"If I had a dollar for every company that Cisco has been speculated to buy," he said, "it would add up to a lot of money. But honestly most of the time those speculations turn out to be untrue."

Still, he did not rule out the possibility that Cisco will acquire more companies to expand its consumer electronics portfolio.

"In general we would always rather build than buy if we have the technology and business expertise," he said. "You usually get a better return on your investment that way. But sometimes it's smarter to buy."

For now, Cisco's consumer market is miniscule compared with its overall business. The company still generates the bulk of its revenue from sales of networking equipment to large companies. The rest of its revenue is split among sales to small and medium-size businesses, which account for 25 percent of sales. Its service-providers business brings in another 25 percent of revenue, while its consumer products generate only 5 percent of total revenue.

Even with the existing Scientific-Atlanta set-top boxes and yet-to-be announced consumer electronics products, Cisco is a long way from depending on the consumer market in any significant way.


Correction: Charles Giancarlo's title at Cisco was misidentified. He is chief development officer.