Hi Rande, did you see this article in IBD today?
New Channels Opening Up For Cable Gear Longtime leaders General Instrument, Scientific Atlanta face competition
Date: 9/29/99
Author: Reinhardt Krause
As cable TV networks morph into broadband pipes, a battle is brewing between upstart gear makers and old-guard suppliers.
In the pre-Internet cable TV industry, two companies dominated the gear market. That's changing.
General Instrument Corp. and Scientific Atlanta Inc. have sold the lion's share of set-top boxes and network transmission gear that provided video programming over cable wiring.
Now cable TV firms are spending billions of dollars to upgrade to fiber-optic networks. These systems wire homes for fast Internet access, phone service, digital TV and interactive services.
At the same time, the cable industry is consolidating. Mergers are creating heavyweights led by AT&T Corp. and Time Warner Inc.
It looks like gear makers may follow suit. ''If you're going to have a handful of dominant industry operators, you're probably going to see the same among (equipment) vendors,'' said Sharon Armbrust, an analyst at market researcher Paul Kagan Associates Inc. in Carmel, Calif.
The top suppliers will address three markets, she says: cable modems for Internet access, telephony gear and digital video equipment.
''They'll need to have strategic alliances, licensing deals or acquisitions or mergers that will put them in those areas,'' she said.
Enter Motorola, Sony, Others
Motorola Inc. is among those trying get a bigger share of the cable gear pie. This month, Schaumburg, Ill.-based Motorola revealed plans to buy General Instrument in an $11 billion stock swap.
Other big companies poised to make moves in this market, say analysts, are phone-gear makers Lucent Technologies Inc. and Nortel Networks Corp., Japan's Sony Corp. and Sweden's L.M. Ericsson AB.
Sony has dabbled already. It bought a small stake in General Instrument in 1997. Despite rumors that Sony might buy GI, the two weren't a good fit, analysts say.
Nortel acquired cable modem know-how by buying Bay Networks Inc. last year. It also owns Arris Interactive Inc., a joint venture with Meadows, Ill.-based Antec Corp. Arris makes cable telephony gear.
As a potential acquisition target, industry speculation centers on Atlanta-based Scientific Atlanta.
''S.A. has to be in play over the next 12 months,'' said Michael Harris, an analyst at market researcher Kinetic Strategies Inc. in Phoenix.
General Instrument and Scientific Atlanta aren't as dominant in the cable industry as they were in the early 1990s.
Sony, for example, won its first big deal to sell set-top boxes this month. Cablevision Systems Corp., the sixth-biggest cable TV firm, said it plans to buy $1 billion in digital set-top boxes from Sony.
The Changing Leaders
GI enjoyed big operating margins through the mid-1990s. But it restructured in early 1997.
The company had troubles when cable TV firms delayed building new digital networks until they figured out how to generate revenue to pay for the advanced systems.
Its bigger trouble was that cable firms didn't want to be locked into sole suppliers. GI had such a hold because it built proprietary security features into its cable gear.
But last year, cable TV system operators developed industry standards that enabled more gear makers, such as Cisco Systems Inc., to emerge. The standards let products from different vendors work together.
At the same time, federal regulators ordered that cable firms sell set- top boxes in retail stores, instead of just selling or leasing the boxes themselves. Digital boxes should be available retail by July. That's one reason for the GI-Motorola deal, says Harris at Kinetic Strategies.
''How does GI compete in Circuit City against Sony?,'' he said. ''No one knows the GI brand for a set-top box. Motorola is a leading consumer player with a retail presence.''
(C) Copyright 1999 Investors Business Daily, Inc.
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Glad to see you are following ANTC.
regards,
dkg |
