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Latest Telepresence and Visual Collaboration News:
Full Article:

Cisco to Buy TANDBERG for $3.0 Billion, What it Means, and Why I Publicly Predicted it 7 1/2 Months Ago

October 1, 2009 | Howard Lichtman
cisco_buys_tandberg.jpgCisco announced today that it will acquire telepresence and videoconferencing equipment provider TANDBERG for almost $3 billion in an all cash offer.  The Wall Street Journal reported that the announcement sent shares of Tandberg (TAA) trading up 15.70 Norwegian kroner, or 11%, at NOK154 by 0731 GMT. This was a 25.2% premium to the 3-month volume weighted average closing price for TANDBERG's stock.
 

Cisco CEO John Chambers and TANDBERG CEO Fredrik Halvorsen discuss the Acquisition

Cisco is offering NOK153.50 a share, valuing Tandberg's total share capital at NOK17.2 billion ($2.97 billion). TANDBERG reported revenue of $809 million in 2008 and competes with Cisco in the market for telepresence and videoconferencing solutions including Telepresence Group Systems, Videoconferencing Systems, and Video Network Infrastructure.  Cisco has reported that Cisco TelePresence is the company's fastest growing product line ever with 350 organizations deploying over 2500 TelePresence Systems since the product's launch in October of 2006.

Demonstrating the potential of telepresence technology in managing multi-national enterprises, Cisco has deployed over 608 telepresence systems internally reducing their internal travel budget by 50% and saving, by their estimate, over $400 million in hard and soft costs.

Cisco has begun a major push to expand the ability to connect Cisco TelePresence systems among disparate organizations to enable Inter-company business between organizations that deploy TelePresence and their partners, vendors, and customers.  The company has signed up some of the world's largest telecommunications carriers and Managed Service Providers including AT&T, BT, Orange, NTT, Tata Communications, Telefonica, Telstra, Telmex, and just yesterday announced a deal where IBM will provide managed services for Cisco TelePresence.      

Marthin_De_Beer.jpgFredrik_Halvorsen.jpgIt is reported that TANDBERG will be integrated into the Emerging Business Technology Group which developed Cisco TelePresence under Cisco Senior Vice President Marthin DeBeer where TANDBERG CEO Frederick Halvorsen will lead a newly formed business called the TelePresence Technology Group.






Howard Lichtman's Thoughts and Analysis

On February 11th, 2009 I speculated publicly that Cisco would probably acquire TANDBERG.  Here is the logic of the business case that I took one of our consulting clients, a buy/sell side hedge fund, through in April of 2009:


1. TANDBERG fills out Cisco's Telepresence and Visual Collaboration Portfolio while Removing and Co-opting their #1 Competitor
TANDBERG_Total_Video_Solutions.jpgWhile Cisco has been able to drive an amazing amount of sales for what is essentially a V 1.5 telepresence offering with "OK" environmentals, it could have driven substantially more if it had a more complete product line with better interoperability at higher qualities with traditional videoconferencing systems. While TANDBERG was late getting into the telepresence game, they have been catching up quickly with their T1 / T3 telepresence offerings and broad visual collaboration portfolio and have been hitting on all cylinders as an effective marketing and sales organization.

The TANDBERG acquisition gives Cisco:


  • High Quality, Lower Cost End-points - A wide variety of more cost-effective videoconferencing endpoints with excellent native inter-interoperability with traditional standard-based videoconferencing end-points. TANDBERG boasts a complete product portfolio that extends video capabilities from high-end telepresence end-points to group systems to desk top applications to video phones to laptops and mobile devices.
 
  • Video Network Infrastructure & Video Network Management-In 2007 TANDBERG acquired Codian the leading manufacturer of vendor neutral HD video network infrastructure.  That acquisition allowed TANDBERG to lock up a vendor neutral platform that they could then tightly integrate with their endpoints and management platform AND took the largest and most sophisticated engineering team working on video network infrastructure off the market blocking some folks who are probably still kicking themselves right now.  The TANDBERG/Codian platform had quickly becoming the defacto standard for telepresence and videoconferencing managed service providers who must manage multiple HD video streams and connectivity between multiple platforms. The company also expands their portfolio of video network management tools with TANDBERG's respected TANDBERG Management Suite which simplifies the management of large telepresence and videoconferencingdeployments to TANDBERG's firewall traversal technology to recording-archiving-streaming.

2.  The TANDBERG Acquisition Allows Cisco to give HP, Avaya and Microsoft the Shiv!
  
prison_shiv.jpg
Talk about kicking your competitors where it hurts...  TANDBERG had a key partnership with HP in visual collaboration where HP was filling in the gaps of their own telepresence and visual collaboration portfolio in essentially the same areas outlined above and Microsoft and Avaya had key partnerships in Unified Communications.  With HP Halo, TANDBERG was acting as a sales channel for the sale of HP's managed services for telepresence and videoconferencing including the $100MM+ HVEN network that I advised them to abandon in 2005. HP loses essentially their entire R&D investment in time and treasure and their #1 sales channel for managed video services, a portion of their roadmap for the next generation of HP Halo offerings, and the key supplier for the camera and codec in their offering is now their #1 competitor.

Microsoft and Avaya had partnerships with TANDBERG  where they were integrating videoconferencing elements into their Unified Communications (UC) offerings.  Since Cisco is a direct competitor with both Microsoft and Avaya in UC I am assuming that this work will be coming to a grinding halt... 

3.  Cisco Seizes the Most Successful Management Team, Sophisticated R&D Organization, and Valuable Intellectual Property Portfolio in Visual Collaboration.
TANDBERG_YOY_Earnings.jpgIn June while accompanying a group of European and American investors on a tour of telepresence and videoconferencing companies led by Anita Huun of Handelsbanken, I was introduced to a concise piece of wisdom from Guido Jouret, the CTO of the Emerging Technologies Group at Cisco: "Where there's mystery, there's margin".  I can think of only a handful of industries where this holds as true as telepresence and visual collaboration. Encompassing the arcane sciences of codec transcoding, telepresence environmental design, wire-speed video network infrastructure, true QoS inter-networking, and a variety of other technical specialties that make the brain hurt just pronouncing their names.  Cisco inherits a rich tradition of technological innovation, a superb R&D organization, a compelling portfolio of intellectual property, and the most professional and accomplished management team in the industry led by Fredrik Halvorsen.   TANDBERG has been posting double digit YOY revenue growth since Mr. Halvorsen took over the reigns as CEO in December of 2005.      

4.  Cisco Turns Their Pile of Rapidly Depreciating Fiat Paper Tickets Into Real Assets  

Dollar_Depreciating.jpgAccording to the Wall Street Journal, the Cisco war chest is down to a still impressive $13 billion after spending "almost $22 billion to buy back nearly 900 million of its own shares over the past three fiscal years through late July".  In a similar vein to the advice we give our consulting clients that are "US dollar rich" (Turn your rapidly depreciating fiat paper tickets into an ability to collaborate globally with business partners, vendors, and investors without physical travel). I think it makes good business sense for Cisco to turn its depreciating paper tickets into assets during a time when the US Dollar is under considerable stress from declining tax revenue, sky rocketing budget deficits, stealth monetization of sovereign debt, exposure of the Fed's manipulation of the gold market, and foreign investors abandoning US equites, corporate paper, and sovereign debt. Furthermore, they will be able to make this acquisition with off-shore dollars avoiding the tax hit that a domestic purchase would have required.  


It was for these reasons (and others) that I predicted that Cisco would buy TANDBERG in February of 2009.  I thought that telepresence and videoconferencing equipment maker LifeSize Communications might have been a less expensive option but was speculating openly that TANDBERG was the best fit.  My comment about $35MM to do publicly available telepresence right in the quote refereed to the Human Productivity Lab's business model for a global network of publicly available telepresence conferencing centers, Powwow Virtual, that Entrepreneur Magazine will be profiling in its next issue. 


Other Thoughts and Analysis

Who Wins

  • Cisco's TelePresence Customers and Partners- Many of whom have been sweating over Cisco's lack of a more sophisticated strategy around inter-operability, lower-cost, higher quality end-points, and telepresence exchange. 
  • John Chambers - Gets the missing pieces of the puzzle to complete the vision
  • Marthin DeBeer - That guy is building quite an empire... Good thing he has telepresence
  • Fredrik Halvorsen - Big payday, global recognition, and resources for expansion
  • Cisco Systems Integration and Managed Service Partners Skilled in Both Cisco & TANDBERG - IVCi, Dimension Data, IBM, Glowpoint, York Telecom, and BT Conferencing immediately spring to mind  

Who Hurts (Besides HP, Avaya, and Microsoft)

RADVISION - OEM partner for many of Cisco's existing video network infrastructure solutions.
 
The Rest of the Telepresence and Visual Collaboration Industry - Better get on your bikes and peddle friends... Cisco and TANDBERG are going to be a formidable competitor...




About the Author
HSL_Headshot.jpgHoward Lichtman is the President of the Human Productivity Lab, an independent consultancy focused on telepresence and effective visual collaboration for organizations looking to improve productivity and reduce costs.  The Lab provides corporate clients with acquisition consulting, RFI/RFP creation, and ROI/TCO financial modeling on telepresence systems, telepresence managed services, and inter-networking telepresence. The Lab also provides investors with prescient insight into the rapidly growing telepresence industry.  Mr. Lichtman is also the publisher of Telepresence Options, the #1 website on the internet covering telepresence technologies. 

 



 

 




















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