From SI -Chambers predicting network traffic explosion
Cisco Girds to Handle Surge in Web Video.
By MARK BOSLET
DOW JONES NEWSWIRES
December 8, 2005
Cisco Systems Inc. made its name supplying the gear that controls the movement of data over the Internet. Now that online video appears poised to boost Internet growth, Cisco is moving to supply gear that moves video off the Internet and into the home.
Two recent acquisitions are the clearest sign yet that the company, which has $24.8 billion in annual revenue, sees bandwidth-hungry video as a significant future market. In the next decade, video will sharply increase the load on the routers and switches that handle Internet traffic, says John Chambers, Cisco's chief executive officer.
The role of video in Cisco's future took center stage at a meeting this week with Wall Street investors as the company, which is based in San Jose, Calif., plugged its proposed acquisition of television set-top box maker Scientific-Atlanta Inc. and the recent purchase of a small consumer-electronics maker. The deals also underscored Cisco's rising interest in the consumer marketplace, as gains in its flagship switching market slow.
Mr. Chambers predicts the demands of video will transform the Internet over the next decade. Network traffic should increase fourfold to sixfold annually, instead of the 100%-a-year gains now seen in the U.S. and Europe, he says. Beyond the heavy traffic is the technical challenge of moving video, Mr. Chambers says. "Making [video] work is really, really, really difficult."
Scientific-Atlanta's products help Cisco expand its offerings by bringing it closer to the consumer market for movies and other videos. The set-top box becomes a valuable piece of real estate as video becomes more widespread, Mr. Chambers says. And it brings technology that Cisco is lacking. The company announced its bid last month and hopes to close the deal, valued at about $6.9 billion, early next year.
Mr. Chambers also contends that the acquisition brings Cisco new opportunities abroad, where Scientific-Atlanta has less presence. Only 30% of spending on Internet-based television broadcasting gear takes place in the U.S., he says.
Cisco's recent $61 million purchase of Kiss Technology AS, a Danish consumer-electronics company, was in anticipation of a push into video like the one with Scientific-Atlanta. Kiss "may have been one of the most aggressive moves we made," says Mr. Chambers.
Kiss makes an Internet-connected device for the European market that can play DVDs on television sets, play Internet radio and download weather reports, stock quotes, and other video. Cisco says it is preparing to roll out new products for the European market from the acquisition. They include a new DVD player with an internal hard-disk drive for storing video downloaded from the Web.
Next year, Kiss expects to enter the North American market with Internet-based products that play movies and television.
"This will be a new expansion of our approach to networked entertainment," says Chris Stevens, a vice president at Cisco's Linksys home-networking division. Cisco is creating a Networked Entertainment Business unit around Kiss that will be formally announced next month along with the new Kiss products for European customers.
Cisco says it expects to sell Kiss products through service providers -- such as the cable companies doing business with Scientific-Atlanta -- as well as in retail stores, where its Linksys PC-networking unit commands shelf space.
Only 12% of digital cable set-top boxes have hard drives capable of recording programming, says market-research firm Forrester Research. By 2009, the number should be 50%.
Cisco hasn't yet detailed plans for Scientific-Atlanta and Kiss to jointly develop technology. Aaron Raker, an analyst at A.G. Edwards & Sons, doesn't expect significant integration between Scientific-Atlanta and any Linksys products in the next 12 months. Cisco isn't likely to risk disrupting the Scientific-Atlanta business, he says.
