In July 2015, Cisco Systems Inc. (CSCO) agreed to sell its video set-top-box division to France-based Technicolor in a deal worth $600 million. Technicolor’s acquisition of Cisco System’s Connected Devices business was a strategic move to expand the firm’s presence in the home entertainment market as well as its North American footprint, according to Reuters.
As part of the agreement, the networking hardware vendor and the worldwide tech leader in the media and entertainment industries continued to work together to develop Internet of Things (IoT) and video technologies for the emerging connected home market.
Bottom Line Below Expectations
The French company recently reported that core profits failed to meet its forecast in 2016, which it attributed largely to lower-than-expected sales in its connected home business and changes in foreign exchange rates. Additionally, a €5 million negative contribution from exited activities served poorly for the tech firm’s bottom line.
While Technicolor says it was ahead of schedule regarding synergies from its Cisco Connected Devices buyout, revenue from its connected home division, focused on digital and cable set-top boxes as well as broadband devices, fell short of expectations. The firmed has blamed the connected home segment weakness largely on devaluation of Latin American currencies versus the U.S. dollar as negatively impacting client spending in the region. Further, two large U.S. customers significantly cut spending, while sales were also affected by component shortages and pricing pressure on memory chips. As a result, the connected home segment declined 12% in 2016.
While Technicolor says its acquisition of Cisco Connected Devices has worked to win the firm new contracts, it does not foresee it benefiting top-line numbers until late 2017 or early 2018. The firm also highlighted that while connected home sales slumped, free cash flow remained in line with expectations at above €240 million. (See also: Industries Positioned to Gain From IoT in 2017.)
