Early today Cisco and Starent Networks today announced a definitive agreement for Cisco to acquire Starent Networks. Starent Networks is a leading supplier of IP-based mobile infrastructure solutions targeting mobile and converged carriers. Under the terms of the agreement, Cisco will pay $35 per share in cash in exchange for each share of Starent Networks and assume outstanding equity awards for an aggregate purchase price of approximately $2.9 billion. The acquisition has been approved by the boards of directors of both companies. The announcement closely follows Cisco's announcement to acquire Tandberg, the leading supplier of videoconferencing systems.John Chambers, Cisco Chairman and CEO said that Cisco was "very pleased that Starent Networks will be joining the Cisco team, and we believe their products and engineering talent will greatly benefit our Service Provider customers as they build out their Mobile Internet offerings." Pankaj Patel, Senior Vice President/General Manager, Service Provider Business, said that the two companies "share a common vision and bring complementary technologies designed to accelerate the transition to the Mobile Internet, where the network is the platform for Service Providers to launch, deliver and monetize the next generation of mobile multimedia applications and services."
Starent Networks provides the multimedia intelligence, core network functions and services to manage access from any 2.5G, 3G, and 4G radio network to a mobile operator's packet core network.
The new acquisition is a signal that Cisco believes that smart phones will play an increasing role in the delivery of data and information to mobile consumers and workers, especially in the form of video. Cisco has forecast that by 2013 about 60 percent of the data traveling across mobile networks will come from video. Chambers has been Cisco's most prominent evangelist regarding the growing role video will play in interpersonal communications.
Video is bandwidth intensive, a major driver for customers and service providers to upgrade their network infrastructures, resulting in increased Cisco product sales. Cisco's foray into telephony 10 years ago resulted in a similar outcome, because voice communications required lower latency and more reliable network configurations than what was already installed at most customer and service provider sites: Cisco greatly profits as the dominant supplier of communications switching/router equipment, a high margin product line for the company.
Cisco continues to make acquisitions to further its long term objectives at a time when many of its competitors have been struggling in a recessionary economic climate. Cisco's revenues and profits have also been affected, but its very large cash hoard is an advantage competitors don't have. At the end of Cisco's last fiscal quarter the company reported cash, cash equivalents and investments of $33.6 billion, a 28% jump from the end of fiscal 2008. To sustain long term growth Cisco must prop up its existing revenues base and expand into new tangential product/service markets. Products from companies like Tandberg and Starent are extensions of existing Cisco portfolio offerings that make the company a stronger competitor and weaken the competition in comparison.
