Cisco plucks Procket assets for $89 million

Cisco this week announced a definitive agreement to acquire the intellectual property, a majority of the engineering team and select assets from privately held Procket Networks, a maker of routers and routing technology, for $89 million in cash.

Procket has expertise in routing silicon and software development. Cisco says the purchase — first reported by Network World last week — will add a “rich intellectual property portfolio” and a team of “proven” silicon and software architects to Cisco’s own routing technology and products.

“The addition of Procket’s engineering team to Cisco offers a unique opportunity to accelerate development of silicon and software across Cisco’s next generation routing portfolio,” said Mike Volpi, Cisco senior vice president and general manager of the Routing Technology Group, in a statement. “Procket has some of the world’s foremost designers of sophisticated silicon, software, and network systems with an average of over 15 years of experience in their respective industries. Adding this talent to Cisco’s world-class engineering team will help drive continued innovation in network infrastructure.”

Cisco inherits 120 to 130 engineers, Volpi says.

Procket began entertaining offers a couple of months ago after it fell $20 million short in its latest round of funding earlier this year, says President and CEO Roland Acra.

“We were contemplating a cash picture that was a pretty short runway,” he says. Cisco’s offer was the firmest after discussions with “several dozen people,” Acra says.

The deal is a curious one, however. Procket was an emerging competitor to Cisco in core routing with the introduction of its PRO/8800 router last year. Procket had garnered about 2% of the 10G bit/sec routing market in the first quarter of 2004, according to Dell’Oro Group.

A Cisco spokesman says Cisco is not acquiring Procket products, customer contracts, liabilities, debts or real estate.

And Cisco just announced its own next-generation core router, the CRS-1, amidst much fanfare three weeks ago. Cisco heralded the CRS-1’s arrival as the beginning of a new era of homegrown routing innovation for the 20-year-old company. The CRS-1 took four years and $500 million for Cisco to develop, and features 40G bit/sec silicon packet processors (SPP) co-developed with IBM, as well as the modular IOS-XR operating system with a kernel acquired from QNX Software Systems of Ottawa.

Cisco and IBM claimed the SPPs are “the world’s most sophisticated 40G bit/sec application specific integrated circuit” yet Procket’s silicon technology seems to now cast the future of the SPP into doubt. Procket also has a modular operating system for its routers which would appear the limit the lifespan of IOS-XR as well.

A Cisco spokesman says Procket’s expertise in customizable off-the-shelf (COTS) development and engineering will complement both Cisco’s SPP and its own COTS activities. Procket’s technology is expected to refresh a huge chunk of Cisco’s routing portfolio, from the 7200 series devices used at the enterprise and service provider edge, to the 12000 series Internet edge and core routers.

Volpi says the engineers will be working on provider edge extensions to the IOS-XR operating system and a follow-on generation to the SPP, oriented towards lower-end systems, that Cisco already has underway.

“The chipset that Procket uses today and the chip technology will, in all likelihood, not be broadly utilized at Cisco,” he says. “On the software side, there may be some things that are reusable because we have relatively similar architectures. We’ll have to parse through it and see how much we can use.

“As we expand IOS-XR onto additional platforms it will retain its current architecture, including the (operating system),” Volpi adds.

Cisco and Procket competitors are rejoicing over the deal.

“Cisco’s need to go outside (shows) there are fundamental issues with the CRS-1,” says Hudson Gilmer, senior marketing manager at Avici. “There’s something broken within Cisco’s own development facilities. They now have three platforms (IOS, IOS-XR and Procket’s PRO/1) and that’s got to be confusing to customers.”

“Procket ran out of money,” says Mukesh Chatter, president, CEO and founder of Axiowave, a four-year-old core router maker. “Procket was a good box for best-effort (applications), which was 1998 and 1999’s problems. It did not enable carriers to make money. It was Juniper on steroids.”

Volpi suggests there will be no customer confusion.

“We will not have three operating systems,” he says. “PRO/1 will not be used in Cisco products. It will not likely see the day as a commercially available operating system.”

Upon the closing of the deal, Cisco will own Procket’s entire intellectual property portfolio. The engineers, including Procket Founder and CTO Bill Lynch, a silicon innovator and lead architect for Sun’s UltraSPARC-IV microprocessor, will become part of Cisco’s Routing Technology Group under senior vice presidents Volpi and Prem Jain.

In all, 17 former Cisco engineers that were employed by Procket will be rejoining Cisco, the spokesman said.  Acra, who had been a Cisco service provider CTO, will be under contact to Cisco until Procket’s assets are assimilated into the company. He will then move on to other endeavors, the Cisco spokesman says.

This asset purchase is subject to various standard closing conditions and regulatory approvals, and is expected to close in the first quarter of Cisco’s fiscal year 2005. After that, Procket will wind down operations and dissolve, Acra says.