MAY 16, 2007 -- Communications infrastructure equipment OEMs are engaging in a spate of mergers and acquisitions (M&A) to restructure themselves into one-stop shops that can sell the telcos everything they need to compete in the booming IPTV market, according to iSuppli Corp. (search for iSuppli). At stake for these OEMs is a market for IPTV telco equipment that is expected to grow to $22.1 billion in 2011, up from $9 billion in 2007. The figure above presents iSuppli's forecast of worldwide telco spending on IPTV equipment.
"The OEMs are styling themselves as one-stop IPTV shops because of the telcos' lack of experience in video," said Steve Rago, principal analyst for networking and optical communications with iSuppli. "To make up for this inexperience, the telcos require equipment suppliers that can address all aspects of a video network.
"In order to acquire a complete portfolio of IPTV products and technologies, the tier-one OEMs are engaging in a spate of mergers and acquisitions. Many of the tier-two OEMs, which are having difficulties in establishing beachheads in the IPTV market due to the telcos' desire for end-to-end solutions providers, are more eager to enter into mergers or strategic alliances with tier-one suppliers," Rago added.
Leading the OEM M&A frenzy is Ericsson. Ericsson -- with its purchase of Marconi in 2005, Redback Networks Inc. and Entrisphere Inc. in 2006, and its current pursuit of Tandberg TV-- is positioning itself to be a complete IPTV supplier. Speaking at Ericsson's annual general meeting, Carl-Henric Svanberg, president and chief executive officer of the company, stated that television, i.e. IPTV, will have a transformative impact on telecommunications networks.
"IPTV will drive traffic and generate more equipment needs as well as exciting opportunities in services and multimedia," Svanberg said, according to press accounts.
However, Ericsson is not alone in its pursuit of IPTV business, as Motorola Inc. has purchased Netopia Inc., Tut Systems Inc., and Vertasent LCC -- a developer of video-on-demand (VOD) and IPTV software -- and has forged a strategic alliance with ECI Telecom Ltd. Cisco Systems Inc. has followed the same path with its purchase of Scientific-Atlanta, Linksys, and Arroyo Video Solutions, a maker of video-networking software.
Meanwhile, Nortel Networks Ltd. took a different approach in broadening its IPTV portfolio by entering into an agreement to jointly develop middleware for the IPTV market with pay-TV software specialist NDS Ltd. During the same period, Lucent merged with Alcatel, forming Alcatel-Lucent, a leading player in the IPTV equipment space. Finally, Siemens and Nokia proceeded with their planned merger, creating another potentially powerful competitor.
iSuppli expects the M&A activity to sustain its fast pace in 2007 as OEMs continue to round out their IPTV product portfolios. The focus of M&A activity in 2007 will be on middleware, VOD, and possibly video encoding, iSuppli predicts.
Rago's upcoming report, "IPTV Promises Big Dividends for Early Investors," will present further information on this topic.