Cisco sells recent acquisition to Israeli firm

ITworld.com –

Cisco Systems Inc. decided to unacquire an Israeli network equipment developer purchased in the joy-filled days of 2000, selling its 8110 Broadband Access concentrator business to Tdsoft Communications Ltd., another Israeli telecommunication equipment maker, for an undisclosed sum, the companies reported in a release Monday.

Carriers install broadband access concentrators on their customers' premises, to funnel Internet protocol, video, private line and traditional voice traffic into a single asynchronous transfer mode (ATM) network, said Jim Slaby, a senior analyst from Giga Information Group Inc.

"This is the sort of thing a service provider would buy to support multiple services," he said. "It's possible that Cisco has realized it has some overlap in its product lines. Their router lines can do most of these functions."

Cisco originally called its 8110 Broadband Access concentrator the HyNEX HUNT 7100. Cisco expanded its reach in the broadband concentrator field with an acquisition in June of 2000, purchasing the privately held Israeli ATM access equipment maker HyNEX Ltd. for US$127 million. Cisco made 23 acquisitions in 2000.

Some of those acquisitions had more to do with getting talent than getting product, one analyst said.

"In terms of broadband access, their portfolio is pretty crowded. I guess they were trying to parlay the engineering talent or the technology, rather than the product itself," when Cisco bought the company, said Ron Westfall, senior analyst, Current Analysis Inc.

Cisco discontinued selling HyNEX products in April, and lowered the value of the HyNEX purchase by $79 million, taking that sum as a charge against earnings for impaired goodwill for the third quarter, according to its May statement to the U.S. Securities and Exchange Commission.

All but about 10 of the HyNEX core staff lost their jobs during Cisco's April layoffs, according to Ezra Mizrahi, Tdsoft's marketing director. Many of those cut from Cisco ended up at Tdsoft, moving down the road from Shefayim to Herzlia, he said.

Layoffs in the tech sector have given companies rich pickings from the field for experienced engineers, Westfall said. "Anyone that wants to do routing has to be able to work with Cisco's router operating system," he said. Companies "can target the talent they want."

Tdsoft intends to add more functionality to the 8110 line, and then add the product to the company's VoNGATE Voice Access Gateway as a portfolio offering, Mizrahi said. Tdsoft will continue the manufacturing, sales, support and future development of the product.

The purchase of HyNEX essentially reunites the old company under a new company's flag. And though Mizrahi would not comment on the specific purchase price paid for what remained of HyNEX, he said it was less than what Cisco paid for it last year.

"In Israel, you usually see young companies get acquired" by large foreign firms, Mizrahi said. A relatively smaller company buying one back "is really quite amazing." Given the rocky financial climate and the effect ongoing political turmoil between Israelis and Palestinians has had on local enterprise, "It's some hope in Israel in terms of morale ... it's a real achievement," Mizrahi said.

"Cisco is trying to save expenses by backing off their smaller businesses," Mizrahi said.

For Cisco, it's another sign of the company's reversal of fortune.

Electronics manufacturer Solectron Corp. bought Cisco's manufacturing facilities for dense wave-division multiplexing (DWDM) optical network equipment for an undisclosed sum. Cisco said in April it would discontinue an optical networking product from Monterey Networks Inc., a $500 million acquisition in 1999, taking a $108 million charge in the third quarter for lost value.

Cisco was not immediately available for comment.

Tdsoft, in Herzlia, Israel, can be contacted at +972-9-9703888 or at http://www.tdsoft.com/. Cisco, in San Jose, California, can be reached at +1-408-526-4000 or via the Web at http://www.cisco.com.

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