Cisco in pickle after its latest $5bn purchase has been immersed into a scandal.
Click to enlarge
Cisco’s recent $5 billion purchase of website NDS has been thrown in jeopardy following allegations the former News Corp owned site was involved in some fiddling with rival OnDigital’s computer codes, which led it to go belly up.
The allegations, made by Lee Gibling, founder of The House of Ill Compute – known as Thoic – whom claims he worked in conjunction with NDS UK head of security and former police officer, were aired by BBC Panorama program earlier this week.
The fiasco couldn’t come at a worst time for Cisco with the ink barely dry on the NDS purchase contract.
NDS which made smartcards for Foxtel here in Oz and News Corp’s Sky TV operation in the UK and Italy, was snapped up by Cisco just this month – its first major acquisition in 2 years.
The $5 billion buy “presents a difficult situation” for Cisco, admits Adrian Drury, Ovum Principal Analyst.
Rupert Murdoch’s News Corp and NDS deny any wrongdoing and claims all activities were above board.
While the standard response would be to “bury” the (now tarnished) NDS brand into Cisco’s organization – “this is exactly what it must not do” if it is to avoid destroying $5bn deal, warns Drury.
“NDS acquisition brings to the table a globally leading pay-TV middleware and conditional access business” for the network giant, Drury adds.
Cisco said the NDS purchase was a strategic play to help with its Videoscape video system as it looks to gain more presence in that market.
So hold on says Ovum analysts as NDS “provides scale to Cisco’s Videoscape unit and an accelerated route to move away from the troubled Scientific Atlanta hardware business, and into a higher-margin video platform software and services business.”
“However the pay-TV market is changing,” Drury also warns.
As the threat from over-the-top video providers intensifies and demand for on-demand multi-screen access from smartphone, tablet jumps, pay-TV players are finding the embedded nature of NDS in their organizations “restrictive and would consider looking for alternative suppliers.”
“There is also dual risk for Cisco, 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?
The analysts believe NDS will be operated as a ring-fenced business within Cisco, albeit within the Video Technology group.