OVUM評論：Cisco tunes into $5bn of heavy execution risk with NDS buy

This presents a difficult situation for new purchasers Cisco. While the standard response would be to suck NDS into the wider Cisco organization and bury the brand post acquisition. This is exactly what Cisco must not do if it is to avoid destroying $5bn of shareholder value with this deal.

The NDS acquisition brings to the table a globally leading pay-TV middleware and conditional access business. This provides scale to Cisco’s Videoscape unit and an accelerated route to move away from the troubled Scientific Atlanta hardware business, and into a, theoretically, higher-margin video platform software and services business.

However the pay-TV market is changing. As the threat from over-the-top video providers intensifies and there is more demand for on-demand multi-screen access from smartphone, tablet and PC, we are hearing that key pay-TV technology decision makers are finding the embedded nature of NDS in their organizations restrictive and would consider looking for alternative suppliers.

Herein lies the dual risk for Cisco. Firstly, this transaction will open a door for rivals to look to displace NDS. We’ve identified Naspers’ owned Irdeto as a middleware, video content management and conditional access player that will aggressively target the NDS client list. Secondly, will NDS’ client base, and specifically News Corp, invite Cisco to have the same level of strategic technology partnership that NDS has enjoyed?

To minimise these execution risks. It has been signalled to us that NDS will be operated as a ring-fenced business, albeit within the Video Technology group. Hence why Cisco cannot just bury the NDS brand and organizational structure to limit the reputational risk from the hacking allegations.