Market Insight

Swiss set-top box vendor ADB to go private to focus on software

November 17, 2014

Daniel Simmons Daniel Simmons Executive Director, Enterprise & Residential Communications Technology
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Swiss set-top box vendor Advanced Digital Broadcast; more commonly known as ADB, is currently listed on the Swiss Stock Exchange, but intends to go private whilst it completes a transition to become a software-centric rather than hardware-centric company.  It believes its financial performance during the transition will not be stable enough for that of a publicly listed company. The offer of CHF 15.50 per share, from majority shareholder 4T S.A., values the company at just over CHF 70.2M or USD 73.0M. The public tender offer is expected to be settled by 27 January 2015.

Our Analysis

ADB is currently the World’s 17th largest pay TV STB supplier and 13th largest broadband CPE supplier (through its 2010 acquisition of Pirelli Broadband) by revenue, with a market share of 1.5% in both sectors in 2013. It generated USD 231.6M and USD 100.8M, respectively, from these activities. Software and services is its smallest business unit, contributing USD 41M to ADB’s total USD 373.5M 2013 revenue.

Its strategy in both hardware sectors has centred on providing high-specification and high margin products to European pay TV operators and DSL-based ISPs, with a strong emphasis on its software and the advanced pay TV services it enables. Sales in Europe comprised 93% of ADB’s revenue in 2013, with similar historical proportions. This was an excellent strategy, until 2010; ADB’s annually year-on-year revenue growth was generally larger than that of the total market, and it managed to maintain a gross margin of between 30%-40% over that period. However, the European pay TV STB and DSL CPE markets have contracted from USD 4.3B and USD 2.1B, respectively in 2010, to USD 3.8B and USD 1.8B in 2013. During this period ADB has struggled to maintain consistent revenue growth, gross margins, positive profitability, and been unable to expand its business to new geographies; the North American market is high value but saturated and hard to enter, and the price competition in emerging markets is challenging for a European company of ADB’s scale.

ADB’s desire to refocus its business around software and services to achieve greater profitability is reflective of the STB and broadband CPE markets in general. Most major vendors have made organic or acquisitive manoeuvres to grow revenue from software and services, but very few have made substantial transitions from hardware to software. Instead, most have been using software and services to add value to their products.

The combined pay TV STB and broadband CPE market will be worth USD 28.1B in 2014, whereas the software market for these device will be worth just under USD 1B. ADB’s largest opportunity will come from addressing the managed services market, which is larger than the STB market at USD 32B in 2014. Concentrating on services adjacent to STBs, such as Headend integration, OTT, multiscreen, monetisation and content discovery, would be a logical progression. However, bolder moves further back in the delivery chain to services such as encoding, playout, and asset management could be more lucrative.


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