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Cisco to acquire Linksys, take aim at consumer home net market

Wed, 03/19/2003 - 7:00pm
Jeff Baumgartner

The fledgling home networking market may have finally reached puberty.

Tech giant Cisco Systems (http://www.cisco.com) struck an agreement Thursday to acquire closely held Linksys Group (http://www.linksys.com) in a deal valued at $500 million.

Cisco — already a big networking player with large- and medium-sized businesses — said the move clearly signals its intentions to take a leading position in a consumer and small-office/home-office (SOHO) networking segment. That sector is expected to grow from $3.7 billion this year to $7.5 billion in 2006, according to Dell'Oro Group forecasts.

Acquiring Linksys - a particularly strong retail brand — should help Cisco achieve those aims. The deal will give Cisco access to the business and assets of the market share leader in North America (about 39 percent) for consumer and SOHO wired and wireless networking equipment. Cisco said the acquisition should close in the fourth quarter of fiscal 2003. Cisco's 2002 4Q ended on July 27.

Linksys supports a line of about 70 products, including items such as wireless routers and access points, network adapters and wireless print servers. Linksys had 2002 revenues of about $429 million, a growth rate of 24 percent versus 2001, Cisco officials said.

Cisco said it plans to retain Linksys' 308 employees - a figure that could rise as Cisco attempts to grow the business further.

Cisco officials, speaking Thursday during a conference call with reporters and analysts, said the acquisition will position Cisco for a quickly maturing market segment.

The home networking market "is at a critical inflection point, and we think this is the right way and the right time to enter it," said Charlie Giancarlo, Cisco's senior vice president and general manager of product development. "The Linksys brand will [give Cisco] more credibility and traction in the marketplace."

Giancarlo also lauded Linksys for its 24/7 customer service support, price sensitivity and for its lean operations model.

Cisco officials also acknowledged that it would take Cisco two or three years to create from scratch a division that could achieve what Linksys has built on its own.

The acquisition "gives us a jump start to get into this market," Giancarlo said, noting that Cisco's business ties will help Linksys secure more international distribution.

In addition to being a leading retail supplier of home networking equipment, Linksys has made significant strides in the cable sector with more traditional items such as DOCSIS cable modems and a new breed of cable modem gateways based on the CableLabs (http://www.cablelabs.org) CableHome specification.

Linksys is one of two manufacturers to win CableHome 1.0 certification thus far. Netgear (http://www.netgear.com) is the other. A number of MSOs, including Cox Communications (http://www.cox.com), have direct relationships with Linksys to offer home networking services to their broadband subscribers.

On the cable modem front, Linksys held about 3.5 percent of the North American DOCSIS modem market in the fourth quarter of 2002, shipping 65,849 units during the period, according to Kinetic Strategies Inc. (http://www.kineticstrategies.com). Motorola Broadband (http://www.motorola.com/broadband) led the segment in Q4 with 34.5 percent of the North American market.

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