San Jose, Calif. – Cisco Systems announced 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 sited research that indicated the home networking category would grow from $3.7 billion in 2002 to over $7 billion by 2006.
‘Linksys provides Cisco with an ability to access these homes,’ said Charlie Giancarlo Cisco’s senior vice president and general manager of product development, ‘Home networking is quickly becoming a mass. Linksys gives Cisco a well-respected brand and when backed by Cisco this will be enhanced.
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 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 senior vice president of corporate development.
Giancarlo said Cisco initially intended to develop a consumer home networking brand in house, but determined it would take two to three years and a great deal of capital investment to get the sales volume to the point where the endeavor would be successful. Buying Linksys enabled Cisco to bypass
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 relationship as the deal goes forward and that the Linksys brand name will remain.