Two articles that reflect strength in cable industry:
From Financial Times:
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WEDNESDAY DECEMBER 16 1998 Telecoms
GENERAL INSTRUMENT: Shares jump on deal talks
By Roger Taylor in San Francisco
General Instrument, the leading manufacturer of television set-top boxes is in talks with a number of companies including Philips, Lucent Technologies, Cisco Systems, Motorola and Sony.
General Instrument would not comment on the talks yesterday except to say that it was equally willing to pursue its future as an independent existence or as part of a larger organisation, if the right deal came along.
However, people close to the situation said General Instrument had received approaches from half a dozen companies in recent months all interested in either buying General Instrument or entering into a strategic alliance.
The company is now discussing possible deals with most of the interested parties but is not expected to conclude any agreement in the next few weeks.
General Instrument shares jumped 12 per cent yesterday, closing up $3 11/16 at $34¼, giving the company, which had sales of $1.8bn last year a market value of over $5bn.
The news marks the growing consolidation in the market for telecommunications equipment, as telephone and cable TV operators try to install networks capable of delivering all their customers needs, be it telephone, internet access or video.
In addition to making set-top boxes, the company also develops technology used to drive cable and telecommunications networks. Of the companies it is now talking to, it already has product development alliances with Cisco Systems and Sony. Sony holds a 5 per cent stake in the company.
The interest of potential buyers will have been boosted by the knowledge that one of General Instruments biggest shareholders is willing to sell. In September, Forstmann, Little & Co, the New York leveraged buy-out firm, was forced to cancel plans to sell its 12.5 per cent stake in the company because of the dip in the stockmarket. Forstmann Little bought General Instrument in 1990 and then split the company into three parts - General Semiconductor, CommScope and today's General Instrument.
It then took the company public again with an initial public offering PO in 1992 and has been selling down its holdings with secondary offerings in 1993 and 1995.
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And from today's IBD:
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Cable modems are coming into their own.
This year, global cable modem sales are expected to hit 492,000 units, up 130% from last year, according to market researcher Dataquest Inc. By year's end, half a million homes are expected to access the Internet via cable modems, which offer some of the fastest connection speeds available.
Northern Telecom Ltd. has been betting on the growth of cable modems since its Aug. 31 buy of Santa Clara, Calif.- based Bay Networks Inc. Nortel is pairing its networks business with Bay's high-speed modems in a bid to sell cable operators and consumers on new services.
Nortel, which markets its services under the name Nortel Networks, counts Tele-Communications Inc., Cox Communications Inc., MediaOne Group Inc. and other cable providers as customers.
But Nortel faces competition from new, fast digital subscriber lines offered by phone companies. Karl May, a Bay executive now with Nortel Networks, recently talked with IBD.
IBD: What role do you see cable modems playing for Nortel Networks?
May: Cable modems have become an elemental part of cable networks as they build out and go beyond the traditional one-way television network. Internet protocol is driving a lot of the innovation in emerging services. Nortel's interest is in enabling cable operators to become true multiservice carriers - to take their one-way cable networks and turn them into bidirectional networks. Since they are upgrading, we want to help them make the most out of their networks, to generate revenue from high-speed Internet services, interactive television services and voice communications. Cable modems are an important part of that.
IBD: What has joining with Nortel done to boost Bay's cable modem business?
May: Bay Networks was a data-networking company. Cable modems were quickly becoming the vehicle for cable operators to become data carriers. Nobody knows the carrier business better than Nortel. What Nortel provides us with is a richness of technology understanding. They also provide the know-how of telephony and voice service. Finally, Nortel provides us expertise in understanding how to build a true carrier network.
IBD: Do you see cable modem deployment picking up?
May: Over the past two to three quarters cable modem deployment has accelerated. If you look at the number of units we are shipping at the end of 1998, on a quarterly basis it's probably five times what we were shipping at the beginning of the year. We are talking about 80,000 to 90,000 units per quarter and accelerating to 125,000 next quarter. The business is going through a very aggressive growth curve.
IBD: Do you see digital subscriber lines as competition?
May: Absolutely. There are markets where we see DSL as a competitive threat today. There is a strong incentive for cable operators to be aggressive in rolling out services with cable modems. Nortel makes a DSL modem. They've had a healthy run with that business.
IBD: Market researchers put Motorola Inc. at No. 1 in terms of cable modem shipments this year. What is your take?
May: I believe we were No. 1 coming into 1998. Motorola had a healthy uptick toward the middle of 1998. I believe we are back neck and neck. I was speaking with a Wall Street analyst who believes we will be back ahead at the end of the year because the customers we have are growing aggressively. Between (Nortel and Motorola), we have 98% of the installed base worldwide, and it's probably an even split between us.
IBD: How do you see the market playing out?
May: What's happening is a segmentation of the market between the head-end network equipment (gear used at cable operators' sites) and the in-home devices. Our view is that a small number of parties will dominate on the head end. This is where an end-to-end network is required to be competitive. For that reason, we believe we are uniquely positioned because we can build an entire end-to-end network. On the client side, we believe we can provide a robust product in the form of a cable modem. But our real focus is on building the head-end base.
IBD: What will the recently adopted standard for cable modems mean for Nortel Networks and cable modem sales?
May: We were one of the authors of the specification. DOCSIS (data over cable service interface specification) gives us a larger addressable market. It provides a level playing field. It will enable cable modem deployment into the millions from the hundreds of thousands. In order to make this interesting for us, we need to get into the millions.
IBD: Will we eventually see cable modems at retail?
May: For cable modems on a nationwide scale you need uniform availability of the service. What that means is you need national upgrading of cable networks. Everybody has to be two way. That's the trend. We are probably 15 months from having 90% or more of the cable networks upgraded. You need large deployment of the head-end equipment to drive the service. That's going to take some time as well. Retailers are interested in selling the service. If the modem is the vehicle to get them there to sell the service, then that's what they are going to sell.
IBD: When will we see phone service over cable modems?
May: You'll see trials toward the middle of next year. That's our plan. Leveraging the cable modem for voice is a one-time investment. It affords the ability of integrated, blended applications. I can provide data and voice service and bill for it individually. We still see the primary line coming from (phone) technology. But clearly, the interest in offering (cable) telephony is that you have a single, unified platform to offer all these services.
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IBD: Market researchers put Motorola Inc. at No. 1 in terms of cable modem shipments this year. What is your take?
May: I believe we were No. 1 coming into 1998. Motorola had a healthy uptick toward the middle of 1998. I believe we are back neck and neck. I was speaking with a Wall Street analyst who believes we will be back ahead at the end of the year because the customers we have are growing aggressively. Between (Nortel and Motorola), we have 98% of the installed base worldwide, and it's probably an even split between us.
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What the article doesn't say is that CMTO is the largest cable supplier in Europe and of the total market they have between 15 and 20% as of last quarter.
Once their DOCSIS-certified modems ship --- estimated to be certified in January and shipping in February-March time frame --- the statistics will change as they'll be operable with all head-end equipment. This isn't the case now.
TCI is buying pre-certified modems now, but others, like Time Warner, have said they'll wait for the DOCSIS products.
I also learned recently that they company has had 35% growth every quarter since before it went public.
Statistics from Instat estimate there will be 10 million cable modems installed in 2001; 7 million in North America, and 3 million in the rest of the world. By comparison, the estimated total for '98 is 550,000 and for '99, 1.5 milliion. Seems like the makings of a pretty impressive growth curve.
Pat |
