Cisco to buy Linksys in US$500M stock deal

Cisco Systems Inc. continued its 2003 shopping spree on Thursday, this time taking a leap into the consumer and small and home office (SOHO) networking market by acquiring Linksys Group Inc. in a US$500 million stock deal.

Irvine, Calif.-based Linksys is the market leader in the consumer and SOHO arena, which is expected to grow worldwide from US$3.7 billion in 2002 to US$7.5 billion in 2006, according to research from the Dell’Oro Group.

“This purchase creates a significant new market opportunity for Cisco, extending our network innovation in the commercial enterprise and service provider markets to the high-growth consumer and SOHO market,” said Charlie Giancarlo, senior vice-president and general manager, product development at Cisco. “Cisco’s entry into this market through the Linksys acquisition will provide customers will the benefit of home networking products that have enhanced functionality and security”

While both Cisco and Linksys offer products for the wireless LAN (WLAN) market, Cisco’s focus has traditionally been in the enterprise space. Linksys’ offerings include 70 products for the consumer/SOHO market including wireless routers and access points, wireless network adapters and print servers. As well, Linksys offers traditional wired networking products such as Ethernet routers and cable modems, unmanaged switches and hubs, print servers and network interface cards (NICs).

Cisco’s Giancarlo said Linksys currently holds 39 per cent marketshare overall in the consumer and SOHO market, and holds 57 per cent marketshare in the fastest growing segment of the consumer and SOHO market – wireless bridges, routers and gateways. It also boasts 40 per cent of the NIC market – both wired and wireless.

However, Nick Tidd, managing director, 3Com Canada Ltd., called the acquisition “laughable.”

“I think it’s the furthest thing from their core competency they could ever imagine doing,” he said. “Cisco’s experience has traditionally been the high-end enterprise [and] multi-billion dollar service providers….Here they’re entering the absolutely dynamically different spectrum of the industry – going after the consumer with a product line [with a] tagline [that] is going after music and online gaming and can’t support that kind of margin. That will cause them very difficult times ahead.”

However, according to a report released in February by Infonetics Research Inc. in Bromley, U.K., Linksys holds second place behind Cisco in the worldwide wireless LAN (WLAN) market.

Still, Tidd was skeptical. He said Linksys does not play a large role in the Canadian small- and medium-sized business (SMB) market with the exception of the wireless access point arena.

According to Giancarlo, residential broadband connections are projected to increase 35 per cent annually worldwide from 55 million homes in 2002 to 179 million homes in 2006. He also said that the number of networked homes is expected to increase worldwide at an annual rate of 51 per cent from 13 million homes to 68 million homes in 2006.

“Home networking is quickly becoming a mass market,” he said. “We believe that the market is at a critical inflection point and this is the right time and way to enter it – through the acquisition of an established brand offering.”

In 2002 Giancarlo said Linksys’ revenue hit the US$429 million market, up about 24 per cent from 2002.

This latest buy-out falls on the heels of Cisco’s purchase of security software maker, Okena Inc. in January.

Linksys will be operated as a division of Cisco reporting under Giancarlo, and its products will be sold under the Linksys brand name and will continue to be sold through its existing retail, distributor and e-commerce channels. It will retain all 308 employees. San Jose-based Cisco also said traditional customer support channels for Linksys will be maintained as well as current price points. For more information visit

-With files from IDG News Service.

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