Yet another acquisition for Cisco (NASDAQ: CSCO), albeit NDS (Private), with synergies, after coming off lackluster performance against competitors like Juniper Networks while trying to get itself righted on financials and stock price. It continues to signal that John Chambers is looking at familiar methods of partnering with other companies to enhance its R&D (Research & Development) which the company believes is necessary to compete effectively in core markets. See (Cisco Announces Intent to Acquire NDS)
Padmasree Warrior, Cisco’s CTO, (Chief Technology Officer) works to define Cisco’s technology strategy being the primary driver of innovation across the company. She works with the executive team and board of directors being and evangelist for what is possible, pushing Cisco to stretch beyond its current capabilities both in technology and strategic partnerships.
Recent 2011 quote by Padasmree promotes Cisco’s ranking as a #1 innovator:
“However, what’s more important than the size of our R&D budget is its impact and I’m proud to say that the Patent Board today recognized Cisco as the #1 innovator among 141 companies in its annual Telecom and Communications industry scorecard. Cisco ranked #1 for both the number of patents granted, as well as for the overall strength of the company’s patent portfolio, which is a combined measure of quality and quantity.”
John Chambers, Chairman and CEO, Cisco on NDS Acquisition
“Our strategy has always been driven by customer need and on capturing market transitions. Our acquisition of NDS fits squarely into this strategy, enabling content and service providers to deliver new video solutions that leverage the cloud and drive new monetization opportunities and service differentiation.”
Cisco is hoping to capitalize on NDS’s proprietary software solutions in delivering high quality video content via service providers to the consumer. Videoscape, Cisco’s own video software solution produced with heavy research and development will marry with NDS to help solidify a top market position as the service provider go-to company for transforming consumer video viewing experience across any device, anytime, and anywhere. See (Cisco Buys NDS for $5 Billion to Add Digital TV Software)
Cisco-NDS: Will it Work?
Is this the right move for Cisco, to purchase another company to enhance its own capabilities in a core market?. The purchase price for NDS is $5billion including assumption of debt and retention based incentives. Although both companies may have similar strategies and synergies in the video services market, does an acquisition of this magnitude fit with Cisco’s revised strategy of getting the company back on track? My analysis is that Cisco is betting on long term demand for video services over a variety of devices.
If in the short term the partnership realizes significant market gains in video content distribution through service providers and propels Cisco financially in retiring assumed debt acquired with NDS, then yes, it is a success. However, if the burden of debt coupled with lackluster performance of Videoscape and NDS’s software mires the company down in underperformance, the answer is no.
Cisco needs to make this work and they are counting on the tremendous demand for video across any device to make this a success. Hopefully, this marriage will prove to be the “golden egg” Cisco has been looking for to stabilize and grow shareholder value. Current performance has been on the upside as the company restructured and shed unprofitable products.