SAN JOSE, Calif. (AP) – Betting that video will drive the future of networking, Cisco Systems Inc. agreed Friday to buy the cable television technology company Scientific-Atlanta Inc. in a $6.9 billion deal that would create a one-stop shop for sending TV over the Internet.

The acquisition is expected to help fuel the revolution in how TV is distributed and watched – a change that’s accelerating as telephone companies barge into the domain of cable operators and begin offering programming over fiber-optic networks using the language of the Internet.

It also fits Cisco’s strategy of moving into areas that are converging on the Internet Protocol standard – a shift that creates an opportunity to increase revenue with new business and enhance its traditional routers and switches that direct data over networks.

“Over the next two or three years, we are going to see a dramatic change in the landscape, where video-over-broadband infrastructure becomes the centerpiece of investments that service providers make and the expectations that consumers have,” said Mike Volpi, a Cisco senior vice president.

For providers and consumers, IP television promises expanded choices, lower costs and new services in the same way voice over the Internet Protocol has made phone calls less expensive and enabled features that were not possible with the traditional telephone network.

The deal also opens up opportunities for Cisco’s Linksys home networking division. Its products could be made to work seamlessly with Scientific-Atlanta boxes to distribute television throughout the home.

“We have Wi-Fi, broadband routers and other kinds of home devices which we believe can interconnect and extend the Scientific-Atlanta footprint in the home,” Volpi said, “and put Cisco in the leadership not only in the network … but also in the digital home itself.”

It is Cisco’s largest acquisition ever in terms of head count and revenue. The San Jose company is paying $43 a share for Scientific-Atlanta – a 3.7 percent premium over its closing price on Thursday. The Atlanta company has about 7,500 employees and posted $1.91 billion in sales in fiscal 2005.

Scientific-Atlanta shares rose 70 cents, or 1.7 percent, to close at $42.15 in trading on the New York Stock Exchange, while Cisco shares slipped 35 cents to $17.02 on the Nasdaq Stock Market.

The deal, which was approved by the boards of both companies, is expected to close in the third quarter of Cisco’s fiscal 2006 calendar, pending closing conditions.

For Scientific-Atlanta’s business of supplying infrastructure to TV providers, Cisco’s position as the leading provider of network infrastructure will help seal deals as cable, telephone and others build and expand their networks, said Jim McDonald, Scientific-Atlanta’s chief executive.

“These customers want more complete integrated solutions from fewer vendors,” said McDonald, who said he will remain with the company for two years.

Cisco also will help fuel Scientific Atlanta’s expansion beyond cable TV companies that have been relatively slow to introduce new technologies to customers, said Josh Bernoff, an analyst at Forrester Research.

“Cisco has struggled to succeed both with telephone and cable companies. Scientific-Atlanta is sort of in a position where innovation and capital push would be helpful for them,” he said. “We think this is going to make some real changes in the industry.”

Though known to consumers mainly for its cable boxes, Scientific Atlanta also offers the behind-the-scenes infrastructure and support to service providers.

“This is an extremely critical and differentiating characteristic of what Scientific-Atlanta offers and something that even Cisco has a tremendous amount to learn from,” Volpi said.

Some analysts see it as a potentially risky move for Cisco, which has traditionally acquired small, local and privately held companies since its founding in 1984. The closest, in terms of purchase price, was the 1999 purchase of Cerent Corp., also for $6.9 billion.

On Friday, Cisco CEO John Chambers said the deal does fit with the company’s belief that if it can’t internally develop an emerging technology it should either partner with or acquire a leader in the field.

“Video is way too important … to do this in a partnership-type of arrangement,” he said.

Scientific-Atlanta, founded in 1951, is best known for supplying the set-top boxes for cable television operators, though it’s also started working on Internet-based equipment for telephone companies as well. Its primary competitor is Motorola Inc.

Cisco said Scientific-Atlanta will become a division of its routing and service provider technology group, led by Volpi.

Cisco said it expects the deal to be neutral to its fiscal 2006 earnings, while slightly boosting its fiscal 2007 profit before items. Cisco said it will finance the transaction with cash and debt.

—

On the Net:

http://www.cisco.com/

http://www.sciatl.com/

AP-ES-11-18-05 1720EST

Copy the Story Link