Buyer looking to create independent company
Cisco Systems (CSCO) is selling its service provider video software business to Permira, the same private equity firm that sold it the business in 2012. Permira is looking to create a new independent company from that business.
As for Cisco, the sale fits into its strategy to shift away from operations it doesn’t consider the core to the future it wants. As part of the strategy to shift away from potentially risky operations, Cisco sold its connected-device business in 2015.
For the video software business, Cisco is selling off products but keeping intellectual property related to networking, cloud, security, and collaboration.
Video unit has struggled for growth
The video software business is a component of Cisco’s unit FOR which revenue has been declining since 2014. Revenue for Cisco’s Other Products category, which includes the service provider video business, declined 10% YoY (year-over-year) to $270 million in fiscal 2Q18. It declined 16% YoY in fiscal 1Q18.
Cord-cutting tempered Cisco’s video software ambition
Cisco invested in service provider video software with hopes that the traditional television market would continue to grow and that service providers would turn to it for equipment and technology to handle the growing video demand. But the rise of online video services, including Netflix (NFLX) and Amazon (AMZN), is fueling cord-cutting, which is shrinking the pay-TV market. The top 11 US pay-TV operators, including AT&T (T) and Comcast (CMCSA), lost around 3.1 million customers last year, according to Leichtman Research Group.