Buyouts are back in the networking sector. In separate announcements, two networking giants just unveiled deals to gobble up smaller fry.
Cisco Systems (Nasdaq: CSCO ) is back at the buyout buffet. The flow of tiny deals never really stopped, but Cisco sold and shut down more businesses than it bought in 2011. This time, the company is buying privately held optical components maker Lightwire for the princely sum of $271 million. According to S&P Capital IQ, this is Cisco's largest buy since it picked up Starent Networks way back in 2009.
The combination of Lightwire's high-speed transceivers and Cisco's systems expertise is expected to benefit backbone traffic providers and service providers. That's the traditional market for ultra-fast optical systems. Surya Panditi, Cisco's VP of service provider networking operations, explains that the deal will help its target customers "manage the continuing deluge of network traffic alongside tight capital and operating budgets."
Elsewhere, F5 Networks (Nasdaq: FFIV ) picked up privately held Traffix Systems, an expert in Diameter signaling for 4G networks. Diameter is a successor to the industry-standard RADIUS protocol (note the tongue-in-cheek name), intended to patch up known problems with using the old RADIUS technology in modern, large-scale networks.
This is not, as you might have assumed, a direct play on the wireless signal. Rather, F5 will use Traffix technologies to bolster its handling of 4G traffic as it moves between cell towers, network hubs, and data centers. "F5 has the unique depth and breadth to make the transition from 3G to 4G and IMS much simpler, cost effective, and non-disruptive for carriers," says Traffix CEO Ben Volkow.
This deal is too small to merit disclosure of the financial terms, perhaps a disquieting thought for technology plays on 4G networking. If Diameter pioneer Traffix is too small for disclosure, how will 4G security specialist VirnetX (AMEX: VHC ) live up to its $1.2 billion market cap? If the license payments don't roll in by the boatload, VirnetX really doesn't have a plan B.
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