Cisco acquires chip specialist for $US435 million

Cisco Systems has announced the acquisition of two-year-old semiconductor development company StratumOne Communications, in a deal valued at around $US435 million.

The two companies already work together on developing technology capable of transporting data at 10Gbytes/sec for operators of public networks.

In January, Cisco acquired a minority stake in StratumOne.

The latest deal calls for Cisco to exchange between 6.31 million and 7.72 million shares of common stock for all of Stratum One's outstanding shares, Cisco officials said.

The company aims to speed up its switches for carriers by replacing the application software in the switch with customised semiconductors from StratumOne, said Jim Staby, senior industry analyst at Giga Information Group. The silicon alternative is faster and cheaper.

"This acquisition is clearly part of a series. Cisco recognises they can't build everything themselves, and the company gains time to market," Staby said.

Carriers have always demanded scalability and availability, but the move towards integrating data, voice and video over a single infrastructure makes these capabilities even more important, Staby added.

"Cisco is now pulling itself up by the bootstrap to the carrier role," he said.

Cisco started from a base in enterprise network communication -- offering various router products -- and, according to Staby, is now struggling to be a major Internet and telecommunications player, competing with established companies like Lucent, Siemens and Alcatel.

"If an enterprise network is down for a minute, it is not a tragedy; but it is a disaster in the carrier space," Staby said.

However, even though Cisco has less experience with leading telecomms carriers than Lucent, Siemens or Alacatel, all of these equipment makers are facing the same challenges, Staby said. "Everybody is struggling with ways to fill the gaps between the more modern Internet Protocol (IP) carriers and the older carriers, who have huge investments in traditional infrastructure and fibre," Staby said. He sees Cisco well-positioned in that race.

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