Examining Cisco's $3 Billion IP Video Purchase

Cisco has purchased a Scandinavian IP video manufacturer for $3 Billion USD - and it is not Axis. The purchase is for the videoconferencing market and the acquired company, Tandberg [link no longer available], is one of two market share leaders in videoconferencing (the other being Polycom).

The videoconferencing market has interesting parallels to the IP video surveillance market. Both markets are approximately $2 Billion USD currently and project double digit growth over the next 5 years (read an overview of video conferencing market statistics).

While IP video surveillance has a larger existing market to supplant (analog video surveillance), video conferencing has more upside for long term disruption. For instance, Gartner predicts that video telepresence will replace 2.1 Million airseats per year [link no longer available] by 2012, costing the travel industry $3.5 Billion annually. By contrast, IP video is much more of an incremental improvement over analog video surveillance and is unlikely to have that type of long term business impact.

Details on Acquisition: Cisco paid approximately 3.5x revenue for Tandberg ($204 Million USD revenu [link no longer available]e in the most recent quarter). Tandberg had been significantly impacted by the recession with growth dropping from double digits to flat over the last year. The acquisition price was only 11% over the current stock price, a very modest premium.

Sign for Axis?: Given that this is a large investment in a relatively small market for a company based far from Cisco's headquarters (Chambers notes this in an interview [link no longer available]), there are interesting parallels to Axis.

Will Cisco try to buy Axis? I have no idea. However, it certainly makes more sense than the recent Pelco speculation and would provide a company in a similar position in IP video surveillance to Tandberg's position in video conferencing.

[Update 2012: Cisco has not purchased any video surveillance manufacturer.]