Looking to bulk-up its optical systems portfolio, Cisco says it intends to buy Acacia Communications for approximately $2.6 billion.\u00a0 The deal is Cisco\u2019s largest since it laid out $3.7B for AppDynamics in 2017.\nAcacia develops, manufactures and sells high-speed coherent optical interconnect products that are designed to transform networks linking data centers, cloud and service providers. Cisco is familiar with Acacia as it has been a \u201csignificant\u201d customer of the optical firm for about five years, Cisco said.\n\nAcacia\u2019s other customers include Nokia Oyj, Huawei and ZTE. Cisco accounts for about 18% of its revenue, according to Bloomberg\u2019s supply-chain analysis.\n"With the explosion of bandwidth in the multi-cloud era, optical interconnect technologies are becoming increasingly strategic,\u201d said David Goeckeler, executive vice president and general manager of Cisco's networking and security business in a statement. \u201cThe acquisition of Acacia will allow us to build on the strength of our switching, routing and optical networking portfolio to address our customers' most demanding requirements."\nFor Cisco, one of the key drivers for making this deal was Acacia\u2019s coherent technology \u2013 \u201ca fancy term that means the ability to send optical signals over long distances,\u201d said Bill Gartner, senior vice president of Cisco\u2019s Optical Systems and Optics business.\u00a0 \u201cThat technology today is typically delivered via a line card on a big chassis in a separate optical layer but with Acadia\u2019s digital signal processing, ASIC and other technology we are looking to move that from a line card to a pluggable module that increases network capacity, but also reduces complexity and costs.\u201d\nIn addition, Acacia uses silicon photonics as the platform for integration of multiple photonic functions for coherent optics, Gartner wrote in a blog about the acquisition. \u201cLeveraging the advances in silicon photonics, each new generation of coherent optics products has enabled higher data transmission rates, lower power and higher performance than the one before.\u201d\nRecent research from IHS Markit shows that data center interconnections are the fastest growing segment for coherent transceivers.\n\u201cAcacia\u2019s digital signal processing and small form-factor long-distance communications technology is strong and will be very valuable to Cisco in the long and short term,\u201d said Jimmy Yu, vice president of the Dell'Oro Group.\nThe question many analysts have is the impact the sale will have on other Acacia customers Yu said.\u00a0 \u00a0\u201cIf wasn\u2019t for Acacia selling to others, [such as\u00a0Huawei, ZTE and Infinera] I don\u2019t thise think vendors would have done as well as they have, and when Cisco owns Acacia it could be a different story,\u201d Yu said.\nThe Acacia buy will significantly boost Cisco\u2019s optical portfolio for application outside the data center. \u00a0In February Cisco closed a deal to buy optical-semiconductor firm Luxtera for $660 million, bringing it the advanced optical technology customers will need for speed and throughput for future data center and webscale networks.\nThe combination of Cisco\u2019s and Luxtera\u2019s capabilities in 100GbE\/400GbE optics, silicon and process technology will help customers build future-proof networks optimized for performance, reliability and cost, Cisco stated.\nThe reason Cisco snatched-up Luxtera was its silicon photonics technology that moves data among computer chips optically, which is far quicker than today's electrical transfer, Cisco said. Photonics will be the underpinning of future switches and other networking devices.\n"It seems that Cisco is going all in on being a supplier of optical components and optical pluggable: Luxtera (client side optical components and pluggable) and Acacia (line side optical components and pluggable)," Yu said.\n"Unless Cisco captures more of the optical systems market share and coherent shipment volume, I think Cisco will need to continue selling Acacia products to the broader market and other system vendors due to the high cost of product development," Yu said.\nThe acquisition is expected to close during the second half of Cisco's FY2020, and upon close, Acacia employees will join Cisco's Optical Systems and Optics business within its networking and security business under Goeckeler.