Cisco curbs acquisition strategy

By Linda Leung, Network World Fusion |  Networking

Cisco Systems Inc., which had been one of the most acquisitive vendors in the IT industry, now says it plans to scale back and be more discriminatory when purchasing other networking companies due to the depressed economy.

Speaking at Gartner Inc.'s Networking Beyond the Enterprise conference taking place in San Francisco this week, Mike Volpi, who as chief strategy officer was responsible for Cisco's 23 acquisitions last year, said the networking giant will be more focused with its purchases. "Instead of making 50 bets, we're honing down into key markets and getting out of some others," he said, adding that the company would announce "a small number" of purchases this year.

Following its recent disappointing financial results, Cisco said it plans to defocus on certain products, such as ATM access concentrators, optical cross-connect tools and service provider unified messaging systems. As part of this strategy, Cisco on Monday announced it had sold its broadband access concentrator business, which it inherited through its acquisition of Tdsoft Communications Ltd. last year.

Instead, Volpi said Cisco would buy companies that make products in its targeted markets, which include voice-over-IP, storage, high-end routing, IP and metropolitan area networking. Volpi also indicated that Cisco would consider purchasing more mature companies.

"Before, you could buy early-stage companies," he said. "But now, [because of the low valuation of the stock market] we have the opportunity to look at companies with mature development cycles." He added that Cisco has to stop behaving as an investment company funding developments that may or may not see the light of day or be successful in the market.

Geoff Yang, one of the founders of Silicon Valley investment firm Red Point Ventures, who also spoke at the Gartner event, said Cisco is one of only a few networking companies that can afford to make acquisitions in the current depressed market. "A few years ago, it was a great period of time for companies, particularly as they had huge market caps [and could pay for acquisitions using stock]," he said. "But now, there are not so many companies that can afford to buy. Lucent now can't pull off a major acquisition."

Although Yang agrees that Cisco has "the pick of the litter," since there are fewer rivals that can afford to make purchases, the reduction in the number of acquisitions will ultimately be bad for customers because it will result in fewer innovations. "You can't buy speculative technology now - Wall Street won't let you," he said. "Because there will be fewer acquisitions, some innovations will not make it."

Despite this, Yang painted an upbeat picture of the investment market and said hot areas for innovations include mobile IP, network storage and peer-to-peer access.

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