BSkyB is planning to spend 125 million British pounds ($253.5 million) to acquire British set-top box vendor Amstrad, the operator announced July 31. Two days later, BSkyB reported that Sky Digital Supplies, its wholly owned subsidiary, had its cash offer already recommended by the board of directors of Amstrad, and that BSkyB already had acceptances representing close to 45 percent of Amstrad’s shares.

Notwithstanding, the deal might not be such good news for other set-top box vendors. Carl Gressum, a senior analyst at Ovum opined in a research note that “from a business point of view it must be rather unsettling for the set-top box vendors to see a huge European customer doing backwards integration. BSkyB claims that this will increase product innovation, yet certain operators in, say, North America and Hong Kong might disagree that there is not room for product innovation. In the [original design manufacturer] model you get exactly what you pay for and not a dime more, so you do not expect cutting edge technologies or elaborate designs if you do not pay for it.”

He added that “what we can expect going forward is that BSkyB will drive Amstrad forward. BSkyB has a very good consumer understanding – just see the marketing and success of the Sky+ DVR – and is likely to place some of its consumer resources in charge of driving the product innovation. Amstrad products are likely to be positioned as a premium offering such as HD-DVR, and possibly also as a software platform for additional services or home network management. ODMs are likely to provide solutions for the mid tier and low-end tier. However, this deal is unlikely to go down well with BSkyB’s suppliers, which could imply future issues with the supply chain.”

Other analysts were more positive. In a research note, Daniel Kerven, a media equity analyst at UBS surmised that the deal had limited risk for BSkyB.

"The risk surrounding the acquisition is limited given that Sky represents 70 percent of Amstrad’s revenues with the majority of the remainder coming from Sky Italia,” he said. “Amstrad will now have very good visibility, increasing its value, and it should make a nine month contribution to Sky of circa 5 million British pounds ($10.14 million) post financing costs, enhancing [earnings per share] by circa 1 percent.”

Media equity analyst Sarah Simon of Morgan Stanley, wrote in a research note that the financial services firm was raising the price target for Sky.

"Following Sky’s full year results and the latest acquisition of Amstrad, which will allow the group to extract savings from hardware procurement both in the short and long terms, we are increasing our price target from 690 pence ($13.99) to 715 pence ($14.50). This reflects higher long-term forecasts which themselves are a function of more subscribers added than we had previously expected. Crucially, we now forecast that the company will hit its December 2010 target of 10 million DTH customers. We believe that the combination of a highly competitive triple play offer, ever enhanced functionality (PVR, VOD, HD), and strong marketing effort will allow the company to continue to grow at a faster pace than previously anticipated.”

BSkyB believes the acquisition will bring it a number of benefits going forward, such as an in-house design and development capability, an ability to accelerate the development of new and more innovative products for customers, greater control over product design and technical specification, and enhanced flexibility to deliver continual improvement in product quality. BSkyB also expects to realize a significant reduction in procurement costs within its supply chain as margin currently generated by Amstrad on the supply of equipment to the Sky Group will be retained within the Sky business.