Cisco Embraces KiSS in $61 Million Acquisition

Cisco Systems (Nasdaq: CSCO) today announced a definitive agreement to acquire privately-held Denmark KiSS Technology for its Linksys division in a US$61 million cash and stock agreement. The deal is expected to close in the first quarter of Cisco's fiscal year 2006.

Cisco is betting KiSS' networked entertainment device portfolio, which includes home video products such as networked DVD players and recorders, will compliment Linksys' Voice over Internet Protocol wireless and networking hardware for the home.

KiSS's technology platform also has the capability to extend to other consumer electronics products that Cisco said would help Linksys develop a unique, networked entertainment product suite.

"As more and more entertainment content is delivered over the Internet and as consumers demand access to digital entertainment inside and outside of their home networks, networked entertainment devices will become an integral part of consumer electronics," said Cisco CTO and Cisco-Linksys President Charles Giancarlo.

Maintaining the Core Strategy

The KiSS acquisition maintains Cisco's core strategy that uses acquisitions to build new technologies and speed time-to-market for its products. The deal provides Linksys with technology, intellectual property, and customers.

Cisco expects the addition of KiSS's employees to provide Linksys with a development team focused exclusively on the networked entertainment market and aid in creating a foundation for its internal R&D capabilities.

Yankee Group senior analyst Zeus Kerravala told TechNewsWorld that KiSS definitely fits the profile of a Cisco buy. Historically, Cisco has acquired smaller companies targeted at very focused areas.

"Content is moving to the network and you see Cisco starting to acquire companies that play in that realm," he said. "I think this is the first of what could be many more acquisitions in this space."

Tapping Into New Markets

The timing appears good. According to market researcher In-Stat the worldwide networked entertainment market reached $3.9 billion in revenue at the end of 2004 and is expected to grow to $16.1 billion by 2009. In-Stat also estimates that networked entertainment devices will be in use on more than 38 percent of home networks by the same period.

KiSS's technology platform allows consumer to integrate the home network so devices can access content on the Internet or on other devices on their home network.

Its standards-based approach contributes to interoperability across platforms and product categories. Cisco said this interoperability will create opportunities for collaboration with other manufacturers and content providers.

Cisco said Linksys will continue to support and sell KiSS's existing products in Europe. Over time, Linksys also plans to develop a suite of targeted products for other world markets.

Crossing the Corporate Line

Cisco snapped up Linksys because it offered an attractive parallel to its carrier business, according to analysts. Cisco now is looking for ways to deliver more content over the Internet into homes.

"Cisco is trying to make its brand as important to consumers as it is to corporate buyers. This acquisition is a step in that direction," Kerravala said. "It's rare that you see a company succeed in both a corporate and a consumer business. But since Cisco's entrance into the consumer space is through content delivered over a network, there is an opportunity."