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Technicolor Getting a ‘Good Deal’: Futuresource

Technicolor’s $600 million play for Cisco Systems’ consumer premises equipment business represents quite the bargain, as it will help Technicolor shore up share in a shrinking yet still-substantial set-top box market, reckons Futuresource Consulting.

“At $600 million, Technicolor seems to be getting a good deal – an incremental $1.2 billion in STB sales and access to key North American cable and IPTV accounts, bringing its worldwide share up to 13% (15% of Pay-TV),” Jack Wetherill, Futuresource’s senior market analyst, home electronics, said in a statement. “It also gets Cisco’s Cable Modem business to complement its own Broadband CPE unit, lifting its worldwide share up to about 15%.”

Cisco got into the set-top game almost a decade ago when it put up $6.9 billion for Scientific-Atlanta.

Futuresource said the global set-top market today is worth about $20 billion, and the deal will enable Technicolor to grab at least a 13% claim of it, along with a combined share of about 30% in the North American market.

Cisco’s total connected device sales are expected to total $1.6 billion for fiscal 2015, effectively doubling Technicolor’s Connected Home business in a full year.

That will help Technicolor achieve more scale as it braces for the pending Arris-Pace deal, which will potentially create a company with a 23% of the set-top market and apply more pressure on the smaller players, Futuresource pointed out.

On Tuesday, Pace posted first-half 2015  EBITA of $118 million, up 11% on revenues of $1.07 billion, down 5.3%. Non-CPE equipment revenues rose 34%, to $225 million. It expects full-year revenues to be in the range of $2.65 billion to $2.72 billion. Arris posts Q2 results later today.

Scale is clearly the name of the game in the eroding set-top box market. Per Futuresource, global STB shipments dropped 2%, to 274 million units in 2014, due in part to cut backs in emerging markets like Russia, Brazil, China and India.

But Futuresource’s Wetherill  does not see the bottom falling out of the set-top market, predicting that it will continue to pump out 250 million-plus units per year until 2019, and will still be worth more than $17 million by then.