After absorbing Scientific Atlanta two years ago, Cisco is buying another set-top box business, this one belonging to DVN, which manufactures and sells largely in China.

Cisco will make a down payment of approximately $17.5 million, and may end up paying as much as $27 million in installments over the next four years, with the amounts based on performance – so the maximum price Cisco might pay for DVN would be $44.5 million.

Motorola was reported to have invested in DVN; in 2005 it had an interest in DVN amounting to just less than 20 percent . CED was unable to uncover the status of that investment by press time.

The acquisition gets Cisco into the growing Chinese market, by number of subscribers the largest in the world by far. DVN has more than 25 customers in China, and Cisco expects it will be able to leverage those relationships to sell additional equipment in its Next-Generation Network (NGN) line.

It also appears to bring Cisco into a supplier agreement with Intel. Intel has consistently tried to expand into new markets. It has yet to crack the set-top box business in a big way, but DVN had an agreement with Intel to build hybrid set-tops based on the chip maker’s CE 2110 Media Processor.

Cisco said the acquisition is expected to close in the first half of calendar year 2010, subject to standard closing conditions, DVN shareholder approval and regulatory approvals.

In addition to the acquisition, Cisco has entered into what it described as a “go-to-market alliance” with the remainder of the DVN organization – which will continue to be led by current DVN CEO Terry Lui – in order to use the company's middleware and advanced applications, as well as integration and support services.

Ken Klaer, vice president and general manager of the International Cable Business Unit at Cisco, said, “With this acquisition, we will offer customers the powerful combination of DVN's products with the Cisco IP Next-Generation Network (IP NGN) platform, and Cisco will be well-positioned to engage in the largest digital transformation opportunity in the world today.”

The Chinese cable market is currently the largest in the world, with 160 million subscribers, and is predicted to grow to as many as 200 million over the next three to five years, according to estimates supplied by Cisco. Currently, only about one-third of the market has converted to digital cable. With the Chinese government mandating full digitization by 2015, this represents an important long-term opportunity for Cisco.