Cisco buys StrataCom in US$4 billion deal

Internetworking giant Cisco Systems plans to grow bigger still with the acquisition of StrataCom, an ATM and frame relay WAN switch vendor, in a stock deal valued at US$4 billion.

The deal between the two San Jose, California-based companies, announced yesterday, will be completed by the end of June, pending approval by StrataCom's shareholders and clearance under antitrust legislation.

The deal fills a hole in Cisco's product line, Cisco officials say, enabling the company to offer an end-to-end networking solution for public carriers, Internet service providers and enterprise customers.

StrataCom will license Cisco's IOS software and integrate it with Stratacom's switching products, by an unspecified date. Cisco, meanwhile, will distribute and sell all of StrataCom's products worldwide. In the longer term, the companies will look at joint product development to combine their strengths in IP routing and ATM (Asynchronous Transfer Mode) switching.

"Assuming good execution, our partnership will relieve the congestion on the Internet due to the merging of the two companies' technologies," says John Chambers, Cisco's president and CEO. "This new large-scale ... switching infrastructure will address the growing volume of users and traffic on the Internet and enable the new multimedia applications of the future."

Company officials are also playing down any overlap between StrataCom and another Cisco acquisition, ATM switch maker Lightstream. Lightstream's ATM products are focused primarily on the premises, while StrataCom's are focused on the WAN, according to StrataCom.

Analysts are calling the acquisition -- one of the largest in the networking business -- an excellent move on Cisco's part.

StrataCom will give Cisco an introduction into the carrier and value- added network market, while Cisco will bring StrataCom into the Internet service provider (ISP) market. Cisco has also been looking for a switch vendor to fill out its product line, and the acquisition comes less than a month after IBM announced plans to buy Cascade Communications, a StrataCom competitor.

A hub is the only thing missing from Cisco's product portfolio, according to one analyst, who expects Cisco to acquire a hub vendor in the future.

"Then it'll have every single tool that any of their competitors has," says John Coons, principal analyst for data networking at Dataquest, a Gartner Group company in San Jose.

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