Cisco Targets Business Wireless Market with Airespace Buy

Revisiting a tactic that has been hugely successful in the past, especially when it bought home WiFi gear maker Linksys, Cisco Systems said it would acquire wireless local area network (WLAN) switch maker Airespace for US$450 million.

Cisco said the all-stock purchase of privately held Airespace would augment its existing product offerings in the enterprise and commercial markets for wireless networks, including the important voice over Internet protocol (VoIP) segment. Analysts predicted the Airespace product line would be positioned to appeal to smaller and mid-sized businesses, which cannot afford Cisco’s pricier, more feature-laden offerings.

In the long run, Cisco said, the buy would help improve technology across all of its wireless products, at least in part because the firm holds a number of technology patents.

VoIP Technology

More immediately, Airespace brings a host of lower-cost, business-class wireless solutions to the deal, including wireless network controllers and management software and security features. It also offers technology to enable VoIP phone calls over wireless networks.

Cisco expects to close the deal by the end of April. The company did not detail its specific plans for the firm or its workforce of 175 people, but a Cisco spokesperson indicated it was interested in keeping the bulk of Airespace’s staff, calling it a “proven team of wireless experts.”

If employees are transitioned to Cisco, no long-range moves would be required, as both companies are based in San Jose, California.

Airespace was founded in 2001 and had taken in close to $60 million in venture funding since.

“As part of our global systems approach to networking, we continually look for complementary technology that offers new value to our customers,” said Luca Cafiero, senior vice president of Cisco’s data center, switching and wireless group. He added that both companies strive to help “customers take advantage of the productivity benefits of seamless mobility and computing.”

Been There, Done That

Airespace’s solutions will be sold alongside Cisco’s own Structured Wireless-Aware Network framework, or SWAN, and both product lines will be supported indefinitely, Cisco said.

Acquisitions of up-and-coming companies has been a winner for Cisco in the past, most notably in the case of Linksys, for which Cisco paid $500 million early in 2003. That purchase became the centerpiece of Cisco’s consumer-facing strategy and was almost perfectly timed, as wireless home networking has boomed ever since.

More recently, Cisco has focused on rolling up a number of smaller firms, especially those with cutting-edge technology in the security and software niches, as a way of rounding out its enterprise and consumer portfolios. The most recent purchases included Protego Networks for $65 million in December and a $74 million deal to buy security services firm Perfigo in October.

However, while Cisco is gaining ground in the security space and other networking areas as the economy improves, it has seen some lag in its wireless sales to corporations. In October, Cisco reported that high-end, enterprise-class wireless sales had sagged 2 percent, while its consumer division led by Linksys was up 20 percent.

Sensitive to Price

Analysts noted that by acquiring Airespace, Cisco would end the firm’s resale agreements with some its competitors, including Nortel Networks and NEC.

It also gains a product line with a lower price tag than its enterprise equipment, which is likely to be a strong selling point. For instance, one of Cisco’s wireless network management consoles sells for close to $50,000, while a comparable offering from Airespace costs closer to $10,000.

“It’s a tried and true strategy in the networking space and it’s one that Cisco itself seems to have gotten comfortable with given how often they’ve done it,” Gartner Vice President John Pescatore said.

The trend helps not only Cisco but also smaller firms find an audience for their technology, as big-name networking firms already have credibility with IT buyers in large corporations, something that takes time and money for startups to gain. That, in turn, can help advance technology faster than it would otherwise, Pescatore added. “Enterprises want to buy from someone they trust,” he said.

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