Cisco buys earn mixed reviews

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Cisco buys earn mixed reviews

By Phil Hochmuth

Network World, 07/19/04

Analysts and customers give Cisco mostly passing grades on its acquisitions report card, as the network giant already has bought five companies this year. But none of the acquisitions will drive the company into the groundbreaking new directions Cisco has hinted at, observers add.

Cisco has added advanced routing hardware and software, and remote-office back-up technologies in a little over a month with the acquisitions of Procket Networks, Parc Technologies and Actona Technologies. Observers say the recent purchases add some interesting technologies to Cisco’s menu. Meanwhile, others say Cisco still has work to do with integrating technologies acquired more than three years ago.

Cisco made two security-based acquisitions in March – Secure Sockets Layer VPN vendor Twingo and intrusion-detection system (IDS) vendor Riverhead Networks – then stayed quiet until June, with its $89 million buyout of carrier router start-up Procket. The acquisition was different from previous buys this year because Cisco acquired only the intellectual property and a majority of the engineering team from Procket, not the company’s customer contracts or debts. Procket competed with Cisco in the core routing market and had gained 2% of the 10G bit/sec router market in 2004, according to Dell’Oro.

Observers also said Cisco’s timing was odd because it had just introduced its CSR-1 router, which scaled past any of Procket’s products. Cisco said it plucked the Procket assets and brainpower to enhance its own product development and manufacturing processes.

Earlier this month, Cisco acquired Parc, a maker of routing software algorithms that optimize routing paths in carrier Multi-protocol Label Switching (MPLS)-based networks. Cisco paid $9 million for the U.K. firm and said it will integrate the technology with its MPLS Traffic Engineering product line for carriers.

The buy that might prove most significant for enterprise customers, and risky for Cisco, is the $82 million purchase of Actona in June, says Lawrence Orans, principal analyst at Gartner. Actona makes appliances that let companies consolidate servers from branch offices into a central data center. The boxes replicate storage and application protocols on the branch-office end, allowing for faster access to files and better application performance, Cisco says. Cisco will resell appliances based on Actona software and integrate the technology into blades for its families of access routers.

“Server consolidation is an area where Cisco thinks a lot of money will be spent,” Orans says. He says Cisco’s strategy will be to help corporations bring IT assets in-house and then sell the infrastructure to support large data centers with network and storage switches. The risk, he adds, is that the remote storage network market is not well established. “The companies in that market” – Actona included – “are all start-ups and have few reference accounts,” Orans says.

The fact that Cisco is keeping up its acquisition pace is a good sign, one user says. But that user says he wishes the vendor would work harder to integrate the technologies it bought long ago.

“My issues with Cisco are integration, integration and integration,” says Scott Pinkerton, network solutions manager for Argonne National Laboratories, a U.S. Department of Energy research center at the University of Illinois. “I have to devote a lot of staff and time doing the kind of back-end integration that Cisco should already have,” he adds. Specifically, Pinkerton wants more automated configuration and device awareness among his Cisco IDS, VPN and firewall boxes – all products resulting from Cisco acquisitions over the past decade.

Analysts anticipating Cisco’s move into new markets – which the vendor has vaguely hinted at recently – were not overly intrigued by the vendor’s recent purchases.

“None of these acquisitions brings Cisco into an entirely new business area,” says Cisco watcher Peter Sagawa, a stock analyst with Sanford Bernstein. “They’re all pretty small.”

Sagawa adds that most of Cisco’s acquisitions this year were focused on adding engineering talent or incremental improvements to existing products – such as a Riverhead-based IDS blade for the Catalyst 6500 or Actona-based blades for Cisco branch routers.

At a June Bear Sterns conference in New York, Cisco CEO John Chambers said Cisco is looking into two – and could consider as many as six – new technology areas, but he declined to name them. Cisco today targets six advanced technologies – VoIP, security, storage, wireless, optical and home networking. Cisco has said it will wait until later this year to reveal what these new areas are.

“We have not seen hide nor hare of that yet,” Sagawa says, regarding Cisco technology expansion plans, “and none of [Cisco’s] recent acquisitions address that.”

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