V-Bits makes a set of hardware technology that allows cable companies to deliver digital video services over their networks. The company's technology is currently in trials with several cable firms, according to a Cisco spokeswoman.
The acquisition has been approved by the boards of both companies, and is expected to close in Cisco's second quarter in fiscal year 2000.
Cisco has made a series of moves to become a bigger player in providing technology for the cable industry. In September, Cisco purchased Cocom for $65 million in stock. Cocom, based in Copenhagen, develops high-speed technology for Internet access over cable, satellite, and wireless networks.
V-Bits will allow Cisco to develop technology based on Internet protocol (IP) so cable operators can offer combined voice, Net, and video services to their customers.
"We believe that the digital video marketplace, combined with data services, will be delivered over a single infrastructure in the future," said Ammar Hanafi, director of business development at Cisco. "We think we have a real opportunity here."
Companies such as MediaOne, AT&T, and Comcast, are increasingly looking to use their sprawling cable networks as a means to deliver a variety of interactive services. AT&T is currently waiting for federal approval for its purchase of MediaOne.
V-Bits is based in San Jose, California, and has 30 employees. V-Bits will be incorporated into Cisco's cable products and solutions group, part of its service provider line.
Hanafi said the V-Bits technology will initially be offered in separate equipment, but would eventually be combined with Cisco's current cable gear, sometimes called "head-end" equipment.
Separately, Cisco was recently named the most valuable company in Silicon Valley, pushing Intel to second place.
Bloomberg contributed to this report.