Cisco Gobbles Up Another IT Company

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Cisco (NASDAQ: CSCO), the world’s largest maker of networking equipment, announced on Wednesday the takeover of Israeli software firm Intucell. The move is the latest in a string of acquisitions for the networking giant that aims to become the biggest IT player in its industry. Part of this strategy is improving its range of software and IT service solutions, and the company is willing to invest a substantial amount of money in this division, hoping to double software sales in the next five years. This article will examine a few of the recent acquisitions by Cisco, and what they may add to the company.

Recent Acquisitions

Cisco has been on something of an acquisition spree lately, looking to speedily diversify their product portfolio through these means rather than through pumping money into R&D. According to their website, the company made eleven acquisitions since February last year. Virtually all of these are software companies, which reflect management’s desire to become a more dominant player in the IT industry. Cisco’s three most recent acquisitions are Cariden, Broadhop and Intucell.

Cisco acquired Cariden in November last year for $141 million. The supplier of networking management and planning solutions will be incorporated into Cisco’s Service Provider Networking Group. According to Cisco management, the acquisition reinforces Cisco’s commitment towards providing ISP’s with the tools they need to efficiently manage and monitor their networks.

Then, in December, Cisco announced the takeover of Denver-based software firm Broadhop. In another move to continue developing support solutions for ISP’s, this software firm specializes in policy control solutions for mobile, fixed and wireless networks worldwide. Finally, the company snapped up the Ra’anana, Israel-based Intucell for $475 million this week. The firm produces self-optimizing networking software for cellular networks. It’s clear that Cisco is looking to aggressively expand its ISP services division with these recent acquisitions.

However, the company is also pushing to become dominant in the cloud-computing space with its rather large 1.2 billion dollar acquisition of Meraki. This company provides networking solutions through a centralized cloud platform, and is destined to become the basis of Cisco’s cloud networking group. According to management, the strategic benefit of the acquisition warranted its high price tag.

Cash Position

Cisco seems well on its way to becoming a dominant IT player in the networking arena, but do they have the cash to pay for all these recent acquisitions? The simple answer is that they do. The company has 45 billion dollars of cash sitting around, which is not only a huge amount of money, but is nearing half of the $110 billion market cap. The company has a leveraged free cash flow of $9.27 billion, and about $16.33 billion of debt. Basically, Cisco has plenty of cash to spend on growing in this way.

Compare this to the cash position of competitor Juniper Networks (NYSE: JNPR). Juniper, with a more modest market cap of $11 billion, competes with Cisco in providing network infrastructure solutions. Their software division seems most geared towards internet security, for which they develop integrated firewalls and VPN solutions. Juniper has about 3.15 billion dollars in cash, and a leveraged free cash flow of only $361 million. As such, the company doesn’t have nearly as much money to throw at growing the company as Cisco. On the other hand, they also aren't nearly as large a company as Cisco.

Bottom Line

With a string of acquisitions, Cisco has made it clear that they are looking to grow their networking software division. While it is too early to say how profitable these decisions may turn out to be, it is encouraging that Cisco is looking to grow its product portfolio. The company clearly has plenty of cash to spend on this endeavor, which ultimately looks like a good move for the networking giant.

DUJames has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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