Cisco Systems' 12 acquisitions last year were the most for the network giant since the tech bubble heyday and could portend even bigger spending in 2005.
Only 13 days into the New Year, Cisco acquired its first company with a $US450 million acquisition of wireless LAN (WLAN) switch vendor Airespace. And analysts don't expect the network vendor to stop there. A recent trend of IT industry acquisitions and signals from Cisco that it is looking to enter new markets are among the signs pointing to more buyouts.
Observers claim Cisco's acquisition focus could lean toward technologies such as protocol offload and acceleration wares, WLAN (WLAN) switching and management software platforms.
All will be revealed
Analysts also expect president and CEO, John Chambers, to reveal some of his much-touted, but as yet unnamed, six new advanced technologies the company will target in 2005.
Cisco has historically has been an acquisition ace, building its market-leading router, switch security and VoIP business lines on acquired companies' technology.
Last year, Cisco acquisitions, the most since 2001, were worth about $US805 million.
The company used them to enter new markets, such as wide-area storage management, and to augment its current technologies such as network security, routing and VoIP.
"We use acquisitions to enter new markets, not to acquire where we have a large presence in terms of positioning," Chambers said at the company's analyst conference last month.
With $US3.3 billion in cash, no new market is out of reach for Cisco to buy into.
Chambers also has kept industry watchers hanging since he mentioned last June that Cisco soon would announce six new advanced technology areas, in addition to the six advanced technologies (non-switching and routing) it is already involved in: optical, network security, IP telephony, WLAN, storage networking and home networking. When Cisco's new advanced technologies are named, acquisitions are expected to follow shortly.
"There is a reasonable likelihood that at least some new advanced technology areas could be software-centric," Brantley Thompson of Goldman Sachs said in a recent report on Cisco's acquisition directions. "Recent acquisitions definitely suggest this direction."
Almost half of Cisco's acquisitions last year were software-focused companies. These included Protego and Perfigo, security management and enforcement software makers; Dynamicsoft, which makes carrier VoIP management software; desktop security software maker Twingo; and network management vendor Jahi Networks.
According to Thompson, future software acquisitions and new technology areas for Cisco could include applications for managing video-on-demand services, network management software for virtualising corporate data centre resources (such as storage, processors and applications), and new software platforms for managing how carriers deliver services to business customers.
Cisco's buyout of Airespace is a good fit, some analysts claim, even though Cisco is already dominant in the enterprise WLAN market.
Although Cisco announced its Structured Wireless-Aware Network (SWAN) architecture this year, that architecture is more expensive to deploy and less secure than technology vendors such as Aruba Wireless Networks offer, according to some observers.
Senior analyst with Enterprise Strategy Group, Jon Oltsik, said, another area where Cisco could acquire is in network integration and management services - a market it broke into when it bought VoIP services company, NetSolve.
Some emerging network technologies missing from Cisco's menu include traffic acceleration in data centres and on WAN router links, another industry analyst said.
"We are seeing a lot of interest in the application acceleration market," principal analyst with Gartner, Lawrence Orans, said.
Vendors in this market include Redline Networks, NetScaler and Crescendo Networks. Going beyond server load balancing, where Cisco leads the market, these companies' boxes offload TCP connection processing and other tasks from servers and allow for better application performance.
"If you think about what some of these companies are doing with TCP connection management, there's no reason why that can't be done in a router or switch," Orans said.
Cisco CTO, Charlie Giancarlo, has stated specific interest in technology for accelerating XML traffic on networks using Web services.
"Where we really see ourselves going is towards full message-based routing - things like XML messages," Giancarlo said.
To that end, XML acceleration and security start-ups, such as Sarvega and DataPower Technology, were likely targets, Enterprise Strategy Group's Oltsik predicted.
"Web services need network-based security, authentication, encryption as well as processor off-loading," he said.
"DataPower has a bunch of real networking geniuses working on that kind of thing."
In the acceleration realm, Cisco could also acquire companies in the WAN bandwidth optimisation market, where companies such as Perabit and Expand Networks are leaders. These vendors make boxes that compress traffic and speed up WAN links.
"Cisco has a compression module for its branch office routers, but these newer vendors have better algorithms," Orans said.
"Cisco is letting these guys into their network accounts, and it doesn't have to be that way. I don't know why they've waited to get into this market."