Cisco sacrificing one for another?

Reports have it looking to remove Linksys, pick up a biggie

Just as Cisco is reportedly looking to shed its Linksys home router business, which it acquired in 2003 for $500 million, more speculation surfaces that the company may make an even bigger splash in an effort to energize growth. Bloomberg reports that Cisco's appetite for growth-through-expansion means that storage player NetApp, virtualization partner Citrix and cloud provider Rackspace are now, perhaps more than ever, in play.

Citrix is the most valuable, with a market capitalization of just under $12.5 billion. Rackspace is the third most valuable on that list, with a market cap of just under $10 billion.

Buying any of these companies would be Cisco's biggest acquisition ever, surpassing the $7 billion it plunked down for Cerent in 1999, and Scientific-Atlanta in 2005. And any of these companies would be much more strategic for Cisco than Linksys as the company hones its core focus around routers, switches, video, virtualization, etc., and away from ancillary markets like consumer.

NetApp would bring a key storage piece that Cisco's currently missing in its data center/cloud offerings of a full IT "stack" - servers, storage, networking and virtualization. Cisco, though, is believed to be quietly building up some blocks of that missing storage component.

Citrix would give Cisco desktop and server virtualization, and an application delivery controller, all vital for data center/IT/cloud networking/computing. Cisco killed its own application delivery controller earlier this year and is now reference selling Citrix. It also supports Citrix hypervisors in its collaboration and Unified Computing product lines.

Citrix and NetApp have been mentioned before as possible Cisco acquisition targets. Rackspace, however, would be a departure for Cisco. In discussing its cloud computing strategy, Cisco has repeatedly said it would not offer cloud hosting services, but infrastructure and professional services for its cloud hosting customers.  Rackspace would make Cisco a cloud hosting provider and apparently reverse those previous pledges not to enter that market.

In looking to offload Linksys, meanwhile, Cisco would once again be pulling away from a market where it has not fared well - consumer. Linksys came up in discussions last year on product areas Cisco might divest as it looks to regain focus and turnaround an underperforming business. Cisco jettisoned its Flip pocket videocam and umi TelePresence product lines, but at the time said Linksys was undergoing a realignment to make it key to its core strategy, and more profitable.

Linksys is a low margin business however, and Cisco had a major faux pas with the product between then and now. It appears Linksys' time as a strategic component of Cisco's product line may have finally come to an end.

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