Is Cisco About to Buy NDS?

It was revealed on Thursday that Cisco Systems CSCO could be about to seal a deal to buy NDS Group Holdings for $5 billion. CSCO is the world's largest manufacturer of computer network equipment, while NDS makes software for paid-television channels used by British Sky Broadcasting, Canal Plus and more. NDS is co-owned by Rupert Murdoch's News Corp NWSA. According to Bloomberg, which got its information from Israeli newspaper Calcalist, a deal may be announced on Thursday. The deal would be the latest and perhaps most significant step in Cisco CEO John Chambers' turnaround plan, which started in 2011 when he cut jobs, closed down businesses and refocused on more profitably products. CSCO became more competitive with its prices last quarter, and it offered new products. It was back in December that NDS filed for an IPO to raise up to $100 million. News Corp and Permira took NDS private in 2008, with NWSA gaining a 49% stake, previously holding 72%. In February, CSCO beat sales estimates with its 2Q earnings which was seen as a big success after years of trying to reignite growth. On Tuesday, Morgan Stanley issued a research report stating that Cisco invested another $61M during FQ2'12 in VCE, the Virtual Computing Environment coalition formed in FY10 with EMC and VMW to sell UCS. Cisco holds a 35% interest in the company and has made cumulative investments of $264M. Cisco's carrying value in VCE is $99M, reflecting its $165M share of cumulative losses. On Monday, J.P. Morgan said that, following a strong 3Q11, Cisco's revenue share contracted slightly – mainly in the campus. “Though Cisco could face some campus share pressure in 2012, we believe the company remains best positioned for a Romley driven 10GbE upgrade cycle.” Finally, on March 8, Deutsche Bank reported that Cisco announced their third-generation UCS platform based on Intel's Romley CPU; ship date in March. The latest UCS supports up to 80GE interface speeds and up to 768GB in memory; making UCS among the highest performing systems, especially from a VM density and network speeds point of view. “Cisco is taking a differentiated strategy in our view, positioning UCS as a "platform" versus as a "server". For example, we note that Cisco is leveraging their IT ecosystem partnerships with VMWare, EMC, NetApp, Citrix, etc to position UCS in a wide range of growth use cases.”