IHS Global Insight Perspective | |
Significance | Cisco has made a US$3-billion bid to leapfrog ahead in the video-conferencing and telepresence market. |
Implications | Cisco will gain a number of products for its teleconferencing/telepresence portfolio, tghus enhancing its mid- to lower-cost product line and increasing its ability to integrate multiple vendor systems. |
Outlook | Cisco will gain significant market share and equipment capabilities in an area it has identified as key to future growth. |
Cisco has announced that it has made an offer of 153.5 kronor (US$26.61) per share or around US$3 billion in total in a bid for video infrastructure, conferencing/telepresence equipment vendor Tandberg, which is based in Oslo (Norway) and New York (United States). This is described as an 11% premium on the previous closing day price and 25.2% premium on the three-month volume weighted average closing price for the stock, which the Financial Times reports has risen on the back of other acquisition approaches, despite there being no formal auction process in place. This bid has been unanimously recommended by the board and the acquisition is expected to close in the first half of 2010, subject to closing conditions.
Tandberg offers a range of products, including personal to full conference room telepresence solutions; Codecs (coder/decoder); multi-system servers/integration; video systems for industrial problem resolution or high definition; desktop phone or PC-based video-conferencing; network infrastructure, including communication servers, gateways, content servers and recording; playback and streaming systems; multipoint control units for mixing vendor endpoints; and peripherals, including screens, cameras and speakers.
Cisco notes that it hopes to integrate the product portfolio into its own burgeoning telepresence and collaboration solutions, enabling intercompany and multi-vendor interoperability with pre-eminent usability. Tandberg's Norwegian operations will also be used as a European "centre of video excellence" alongside the Belgium-based service provider video team. Tandberg cvhief executive Fredrik Halvorsen will lead the new Telepresence Technology Group, reporting to Marthin De Beer, the senior vice-president of Cisco's Emerging Technologies Group.
Outlook and Implications
Tandberg Financial Profile
Tandberg grew its revenues by 28.3% in 2008 to reach US$808.8 million, with gross margins of 66.0%, an operating profit of US$176.7 million and a net income of US$134.6 million, up 31.4% year-on-year (y/y). It ended the second quarter with a cash balance of US$208 million. Endpoints (personal and room-sized video systems) generated US$537.3 million (66.4%) of revenues while network infrastructure (Tandberg Management Suite, multipoint control units, gateways, video communication server, gatekeeper, border controller, content server and video switch) generated US$155.1 million (19.2%) and value-added services generated US$116.4 million (14.4%).
In 2008 47.7% of revenues were generated in the Americas. While growing by 19.8% y/y to US$386 million, this was down from 51.1% of revenue share in 2007 and Tandberg focused on building presence in Latin America. The Europe, Middle East and Africa (EMEA) region generated 40.5% of company revenues, having grown by 36.0% y/y to US$327.9 million. The Asia-Pacific region saw revenues rise by 41.3% y/y to US$94.8 million or 11.7% of revenues. Units sold rose by 8.5% y/y while Tandberg systems sold at a premium to the industry, with the industry-wide average selling price (ASP) increasing from US$5,366 in 2007 to US$5,876 in 2008 while Tandberg’s overall ASP increased from US$7,877 to US$8,064. Tandberg noted in its annual report that revenue share of the whole market for video endpoints and network infrastructure stood at 40.7% or 28.9% on a units sold basis.
Product Strategy
Tandberg has built a number of partnerships with HP, Microsoft, IBM and Avaya. These particularly aim to enable interoperability between telepresence systems from different vendors' solutions, such as the Microsoft Communications Server. In the second quarter, Tandberg noted, "The Tandberg telepresence server is a unique differentiator for the company, enabling connectivity with Microsoft Office Communications Server clients and immersive third-party telepresence systems that may be at partner or supplier locations." This was largely acquired through the 2007 acquisition of video bridge vendor Codian. Cisco has been enabling cross-carrier telepresence, but likely recognised that Tandberg could bring in multi-vendor/solution capabilities that would enhance the offering and build the industry as a whole, as well as bringing in new, lower-cost telepresence and video-conferencing solutions to its portfolio (see World: 3 July 2009: Cisco Demonstrates Cross-Carrier Telepresence and 18 May 2009: Cisco Targets Rapid Expansion—Report).
With cash and investments standing at US$35 billion at the end of July 2009, this acquisition will make only a small dent in Cisco's finances while meaning that it is acquiring a market leader in telepresence and video-conferencing, which will boost one of the key pillars of its strategy to emerge from the recession by entering new markets. This will build on the Flip video acquisition, which was intended to build up low-cost consumer video-conferencing services (see World: 8 July 2009: Cisco Set to Launch TV-Based Video Conferencing). The expansion of telepresence offerings could also aid its integration with the portfolio of WebEx collaboration services (see World: 2 June 2009: Cisco Adds to Collaboration Portfolio and Partner Opportunities). Despite a strong performance, Tandberg faced some threat from the push by Cisco and other solution vendors into the video-conferencing market, which this tie-up with Cisco will help to quash. However, the tie-up could threaten some of the collaborations that have helped Tandberg, such as the unified communication server hook-up with Microsoft, the enterprise telephony deal with Avaya and the reseller agreement with HP.