January 30, 2004 1:42 PM PST
Cisco retires wireless chipsets
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The networking gear giant plans to focus more of its energy on software development and on next-generation technologies based on newer standards, such as the 802.11b Wi-Fi standard, the company said.
"The long-term strategic interest no longer lies in internal production of wireless chipsets," Cisco spokeswoman Abby Smith said on Friday. "However, we will continue to invest in wireless software and solution design."
Cisco used Wi-Fi chipsets from Radiata, which it bought in 2000, mainly in its earlier Aironet family of gear for wireless local area networking (WLAN). Currently, it uses merchant silicon to power its newer generation of Aironet products that use 802.11b technology, according to Smith. It has introduced several products in the Aironet line over the past couple of years. Most recently, it has been trying to fix security flaws that have been discovered in the Wi-Fi products.
"This is a market where chipsets have matured to the point where they've become commoditized," Smith said. "We made the decision that we didn't need to continue developing it internally, and we're putting resources into other areas of wireless development."
Smith said it is still too soon to say exactly how many jobs will be affected by the shift. Radiata, which has locations in Australia and in San Jose, Calif., counted 53 employees when it was acquired. Some engineers working on the Radiata technology will be offered positions on other Cisco product teams, but some will likely be eliminated.
Cisco, which makes routers, switches and other networking equipment, has built a broad portfolio of products largely through an aggressive acquisition strategy that depends on its high-flying stock price. Since 1993, the San Jose, Calif.-based gear maker has purchased 81 companies, mostly buying small start-ups with innovative technology. It has avoided acquiring publicly traded companies and resisted buying companies with competing technologies--focusing on acquisitions to spur growth rather than to eliminate competition.
For the most part, the strategy has been successful, building Cisco into a multibillion-dollar networking empire. The company has made some good strategic choices along the way. Its 1995 acquisition of Grand Junction and its 1996 acquisition of Granite Systems are the foundation for the company's Catalyst Ethernet and gigabit Ethernet switching portfolios.
Through these acquisitions, Cisco has moved beyond pure Internet Protocol routing into Ethernet switching, a move that has paid off in the long run. It leads the market in Ethernet switching and generates a large portion of its revenue from these products.
The networking giant bought 18 start-ups in 1999 and 23 in 2000, at the height of the Internet bubble. Some of these worked out well: The company has used technology from optical start-up Cerent, bought in 1999, to develop the cornerstone of its optical portfolio, the ONS 15454, a next-generation SONET/SDH switch used to carry traffic in carrier metropolitan networks. Even so, some experts argue the $7 billion price tag for Cerent was too much.
But other bubble-era acquisitions have not fared so well. One of the biggest disappointments was optical switching start-up Monterey Networks, which Cisco took over for $550 million in stock in August 1999. Two years later, the tech giant discontinued the ONS 15900 Wavelength Router, which used the Monterey technology.
Compared with other purchases at the time, Radiata was a bargain. In November 2000, when the acquisition was announced, the all-stock deal was valued at $295 million. In contrast, Cisco paid about $5.7 billion for ArrowPoint, the developer of a load-balancing IP switch that has never been put on the market, although it has been used to generate other technology.