Cisco Systems signed a deal last week to purchase home networking maker Linksys in a $500 million stock deal, officially launching Cisco into the consumer market.
Cisco, a maker of enterprise level networking gear, said the Linksys acquisition is part of a strategy to broaden its product line into the high-growth home and small business wireless networking and voice-over-IP categories. Cisco cited research that indicated the home networking category would grow from $3.7 billion in 2002 to over $7 billion by 2006.
Cisco will issue about $500 million in common stock to buy the privately held Linksys’ assets and assume all outstanding employee stock options. The deal has gained the approval by the board of directors of both companies and should be completed by the end of 2003. Linksys will become a separate division of Cisco, and Cisco expects it to operate as a low-cost segment that turns profit margins in the 20-point range, said Dan Scheinman, Cisco’s corporate development senior VP.
Cisco does not intend to change how Linksys operates, deals with retailers and develops products. Victor Tsao, Linksys president and CEO, said the company’s partners could count on a business as usual and that the Linksys brand name will remain in use.
