Cisco acquires chip specialist for $435 million

Cisco acquires chip specialist for $435 million

Cisco Systems announced on Tuesday the acquisition of two-year-old semiconductor development company StratumOne Communications, in a deal valued at approximately $US435 million.

The deal calls for Cisco to exchange between 6.31 million and 7.72 million shares of common stock for all of Stratum One's outstanding shares, according to a statement released by Cisco.

The two companies already work together on developing technology capable of transporting data at 10Gbps for operators of public networks, according to the statement. Cisco, based in San Jose, in January acquired a minority stake in StratumOne, of Santa Clara.

Cisco aims to speed up its switches for carriers by replacing the application software in the switch with customised semiconductors from StratumOne, according to Jim Staby, senior industry analyst at Giga Information Group, an IT consulting firm. The silicon alternative is faster and cheaper.

"This acquisition is clearly part of a series. Cisco recognises they can't build everything themselves, and the company gains time to market," Staby said.

Carriers have always demanded scalability and availability, but the move toward integrating data, voice and video over a single infrastructure makes these capabilities even more important, Staby added.

"Cisco is now pulling itself up by the bootstrap to the carrier role."

Cisco started from a base in enterprise network communication -- offering various router products -- and is now struggling to be a major Internet and telecommunications player, competing with established companies likes Lucent Technologies, Siemens AG and Alcatel SA, according to Staby.

"If an enterprise network is down for a minute, it is not a tragedy, but it is a disaster in the carrier space," Staby said.

But, even though Cisco has less experience with major telecom carriers than Lucent, Siemens or Alacatel, all of these equipment makers are facing the same major challenges, Staby said. "Everybody is struggling with ways to fill the gaps between the more modern Internet Protocol carriers and the older carriers, who have huge investments in traditional infrastructure and fibre," Staby said. He sees Cisco well-positioned in that race.

Cisco shares, traded on the Nasdaq stock exchange, declined somewhat early on Tuesday afternoon, selling for $US61.19, down by 75 cents from Monday's close.

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