Cisco may buy Scientific-Atlanta, say reports

Cisco Systems is planning to announce the acquisition of Scientific-Atlanta for as much as $7 billion, according to news reports published on Friday.

Such a move would more firmly position Cisco as a supplier of consumer products and offers the potential for Cisco to assemble a unique media center product, analysts say.

The two companies are close to a deal worth $6.6 billion, according to a report Friday in online edition of The Wall Street Journal. Another report priced the deal at $5.3 billion, for a total of $7 billion including the cash balance of $1.7 billion that Cisco would acquire from Scientific-Atlanta. That report, in The New York Times, said the deal could be announced Friday.

A spokesman from Scientific-Atlanta said he couldn’t comment on the potential deal. Cisco was not available to comment.

Scientific-Atlanta is known for the cable set-top boxes it supplies to cable TV companies, mainly in the U.S. But the concept of home entertainment is changing such that this acquisition, combined with other existing Cisco product lines, could enable Cisco to assemble a unique user offering.

Currently, there is a “philosophical debate” over what type of home media gateway will become most prevalent, said Peter Hulleman, a research manager at IDC. On one hand are companies such as Microsoft pushing software that turns computers into a home multimedia center. On the other are companies driving the concept of set-top boxes combined with the television as the multimedia gateway. With Scientific-Atlanta, Cisco would be in a position to merge the two. “Cisco is very good at hedging its bets,” Hulleman said. “It has its Linksys division which is like the computer-centric approach and with this acquisition they would also have the stereo-TV position.”

Hulleman envisions a converged gateway that might include cable TV capabilities, a cable modem, wireless LAN, VOIP (voice over Internet Protocol) and potentially even high-definition TV. Cisco already has many of these technologies. Such a single solution might make it easier for users to download movies from the Internet and watch them on their televisions, for example, he said.

Acquiring Scientific-Atlanta would place Cisco firmly in the consumer space. The bulk of Cisco’s revenue comes from networking equipment that it sells to enterprises, though it already sells directly to consumers through its Linksys division, the maker of wired and wireless modems and routers primarily for consumers.

Hulleman pointed to the difference between the high-margin enterprise products that Cisco sells, and the consumer electronics business which often has very tight margins, as a potential area for conflict.

“The question is, does a company with its 60 percent margin want to be active in a market where margins are under such extreme scrutiny?” he said.

While that question hangs, Hulleman also said that the potential for the home gateway market is very large and that Cisco has a good track record of making smart acquisitions.