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Cisco to Buy Technology Developer AuroraNetics

July 12, 2001|CHARLES PILLER | TIMES STAFF WRITER

SAN FRANCISCO — Network equipment giant Cisco Systems Inc. ended its self-imposed seven-month moratorium on acquisitions with the purchase of privately held AuroraNetics for $150 million in stock, the companies announced Wednesday.

AuroraNetics, based in San Jose, makes microprocessors for high-speed data networks serving metropolitan areas.

Cisco, among the tech industry's most acquisitive companies, bought 23 networking firms last year. But Cisco, following multibillion dollar losses, a plummeting stock price and 8,500 job cuts earlier this year, said it would hold off on further purchases--even though some competitors had become available at fire-sale prices.

Ammar Hanafi, Cisco's vice president for business development, called the acquisition "a milestone" in a transition period for the company, which is targeting high-growth, high-profit markets. The deal is expected to close in the fall quarter.

Cisco, also based in San Jose, will use the AuroraNetics technology to enhance its metro network "ports" within its routers--devices that manage packets of data on network traffic. Cisco has shipped some 10,000 metro routers to 150 telecom service providers, Hanafi said. The routers cost from $10,000 to $500,000 each. Analysts say that the overall market for metro network products will hit about $7 billion this year.

Cisco also plans to license the AuroraNetics technology to other firms. The licensing approach is new for Cisco, said Peter Andrew, an analyst with A.G. Edwards & Sons.

By issuing new stock for the purchase, he said, "it's a sign that [Cisco] is a little more comfortable with their share price," which has dropped some 75% in the last year.

But experts stopped short of predicting that Cisco's lagging fortunes are finally turning around.

"The purchase leads me to think they won't lay any more employees off," but otherwise says little about Cisco's trajectory, said Sam Wilson, an analyst with Merrill Lynch. "It's a minuscule deal" for a company of Cisco's size.

Cisco shares rose 50 cents to close at $16.70 in Nasdaq trading Wednesday.

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