Cisco Systems Inc. is acquiring Scientific-Atlanta Inc., a global provider of set-top boxes, end-to-end video distribution networks and video system integration. The acquisition creates a world class, end-to-end triple-play solution for carrier networks and the digital home. In addition the market opportunities represented by this acquisition will become part of Cisco's Advanced Technology portfolio.

John Chambers, president and chief executive officer of Cisco Systems, said Scientific-Atlanta gets into the retail market with Cisco's LinkSys router products, and that a combined Cisco/ Scientific-Atlanta will create telco products that integrate the telephone, broadband and television from routers through set-tops inside the phone infrastructure.

Jon Symons, director of media relations at Forrester Research, said the acquisition gives Cisco traction in supplying networking gear to cable companies, which should boost near-term revenue beyond 12-percent.

Symons said cable companies want to move the industry away from analog and digital video eventually toward IP, and this will drive the cable industry that direction.

"Video is emerging as the key strategic application in the service provider triple-play bundle of consumer entertainment, communication and online services," Chambers said. "The combination of Cisco and Scientific-Atlanta brings unmatched experience and innovation in delivering large scale video systems and networks, and the addition of Scientific-Atlanta further extends Cisco's commitment to and leadership in the service provider market. Moreover, Cisco's international presence and IP leadership will also create strategic synergies that accelerate the combined growth opportunity.

"As consumers demand more sophisticated information and entertainment services in their home, tightly coupled applications, devices and networks will be essential. The collective strength of Linksys and Scientific-Atlanta will extend Cisco's leadership position across the entire networked digital home."

Scientific-Atlanta has platforms and technologies that enable scaling to millions of subscribers quickly and easily. This, along with the Cisco IP Next Generation Network architecture, will offer providers an open platform for service differentiation, allowing them to move beyond video/IPTV to develop and deliver a variety of integrated media services in the connected home. Symons said this will pose huge challenges for Motorola.

Following the close of the transaction, Scientific-Atlanta will become a division of the Routing and Service Provider Technology Group under the leadership of Cisco Senior Vice President Mike Volpi.

Scientific-Atlanta, founded in 1951, has more than 7500 employees. For FY2005, which ended July 1, 2005, Scientific-Atlanta reported revenues of $1.91 billion.

Under the terms of the agreement, Cisco is paying approximately $6.9 billion. The transaction will be accounted for in accordance with generally accepted accounting principles, and the acquisition of Scientific-Atlanta is expected to close in the third quarter of Cisco's fiscal year 2006. Cisco anticipates this transaction will be neutral to its FY2006 earnings, slightly accretive to its non-GAAP (pro forma) FY2007 earnings and will be financed with a combination of cash and debt.

The acquisition has been approved by the board of directors of each company and is subject to various standard closing conditions, including approval under Hart Scott Rodino and similar laws outside the U.S. and by the shareholders of Scientific-Atlanta.