Cisco shops to fill technology holes

The networking behemoth diversifies by plunking down nearly $200 million on Ardent Communications and Global Internet Software Group.

Cisco Systems(CSCO) today plunked down nearly $200 million on two companies, furthering its aim to fill technology holes through acquisitions (See table).

Cisco will spend approximately $156 million in a stock swap for Ardent Communications. The privately held firm makes network access hardware that aids voice, video, and data integration over ATM (asynchronous transfer mode) or Frame Relay networks.

The company will also shell out $40 million in cash for the Global Internet Software Group, a subsidiary of Global Internet.Com. Cisco also made an equity investment in the parent firm.

Cisco plans to take one-time charges against after-tax earnings of up to 26 cents a share in its fourth quarter. The deals are expected to close in late July.

These latest deals are designed to help Cisco enhance two aspects of its business: the low-end Microsoft Windows NT firewall arena and the multimedia networking gear market.

The San Jose, California-based networking monolith continues to acquire and invest in companies at a furious pace, underscoring its ability to easily assimilate new employees into its corporate culture.

This latest move represents Cisco's third and fourth acquisitions of the year. The company has now acquired 18 companies since 1993; its April 1996 acquisition of ATM and Frame Relay switch maker StrataCom for $4 billion stands out.

"In general, our philosophy is to have about 70 percent of our products come from internal development and 30 percent through acquired companies," said Mike Volpi, vice president of business development at Cisco. Currently, he said, about 80 percent of the company's technology is developed internally.

"They're basically buying everything they don't have," observed Craig Johnson, principal analyst for market watcher Current Analysis.

Volpi said that despite Cisco's vast resources it is unreasonable to expect the company to stay on top of every emerging technology. Acquisitions fill the void. "We view it as a very efficient process to deliver a product to the customer," he said.

The firewall technology acquired from the Global Internet Software Group will fill in a low-end gap in Cisco's Pix Firewall product line. Global makes a firewall called Centri that runs on NT. An included security management software tool will become the platform for management of Cisco's fast-growing firewall business. The current version of Centri will be immediately integrated into Cisco's product line; a new version is expected within months, according to Cisco officials.

The Ardent acquisition will round out the company's emerging multimedia access concentrator portfolio. Cisco recently announced a 3800 line of voice, video, and data concentrator boxes for enterprises, but the Ardent technology will fill in the low end, providing similar features for remote branch offices.

The approximately 20 employees at Global will continue to work from their Bay Area and Champaign, Illinois, locations, but now for Cisco's Internet appliances and applications business unit. Ardent's 40 or so employees will remain in San Jose, California, and become part of Cisco's multiservice access business unit.

Cisco was an initial venture capital investors when Ardent was founded last year.

Cisco acquisitions for 1996 - 1997
CompanyWhenValueProducts
Netsys TechnologiesOctober$79 million stock transactionNetwork connectivity management and performance analysis tools maker
Granite SystemsSeptember$220 million stock transactionFast Ethernet switching vendor
Nashoba NetworksAugust$100 million stock transactionToken Ring LAN switching products maker
Telebit's MICA TechnologiesJuly$200 million cash transactionAnalog modem business company
StrataComApril$4 billion stock transactionWAN switching solutions company
TGV SoftwareJanuary$115 million stock transactionInternet software products supplier
TelesendMarch 1997N/ADeveloper of low-cost, high-speed Internet access technology
Skystone SystemsJune 1997$90 million cash and stock transactionNetwork hardware maker
Ardent CommunicationsJune 1997$156 million stock swap transactionNetwork access hardware marker
Global Internet Software GroupJune 1997$40 million cash transactionFirewall technology developer
Source: Cisco
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