Cisco to buy Arroyo Video for $92 million

NEW YORK  - Cisco Systems Inc. said it will buy video-on-demand software maker Arroyo Video Solutions Inc. for $92 million, marking Cisco's latest push into the consumer entertainment market.

Cisco earns most of its revenue from providing network gear for businesses and telecommunications companies, but it expanded into the consumer market with its 2003 acquisition of wireless home router maker Linksys and its February purchase of cable set-top box maker Scientific Atlanta.

Cisco said Arroyo's software gives viewers greater choice and flexibility in selecting video on demand, and helps Cisco's phone and cable carrier clients offer more personalized services, such as tailored advertisements.

"The entertainment industry is going through a major shift while consumer desire for personalized on-demand service is on the rise," said Michelangelo Volpi, senior vice president and general manager for Cisco's routing and service provider technology group.

The acquisition is due to close in Cisco's first quarter of fiscal year 2007, which ends in late October, the company said.

Cisco did not provide any forecasts on how the acquired company would contribute to revenue.

"Clearly Cisco is targeting the consumer market very carefully. They're making sure they're a major part of the video distribution chain," said Eve Griliches, research manager at IDC.

Arroyo, whose customers include Comcast Corp. and Time Warner Cable, was founded in 2002 and has 44 employees in California and Utah.

Analysts said Cisco was likely to make more acquisitions and investments in the Web-based television business, with both cable television and phone carriers offering Internet, video, and voice services.

Unlike its peers, Cisco has so far shunned mergers with major competitors and has instead focused on acquiring smaller companies with niche technologies.

Mark Bieberich, director at the Yankee Group, said recent mergers among Cisco's major telecom carriers and network equipment makers made it all the more important for Cisco to bolster its video technology.

"For Cisco to compete with the likes of Alcatel-Lucent and Nokia-Siemens, they'll have to expand their product portfolio further," he said.

France's Alcatel is planning to acquire Lucent Technologies Inc. while Siemens AG and Nokia are merging their telecommunications network equipment units.

Cisco's latest results for the fiscal fourth quarter showed it reaped $582 million in quarterly sales from Scientific Atlanta.

  Report sourced from www.ciol.com