IHS Global Insight Perspective | |
Significance | Cisco has made its second acquisition in as many weeks, making a US$2.9-billion bid for multimedia packet core technology vendor Starent Networks. |
Implications | Cisco has been emphasising its efforts to promoted data traffic through video use in the fixed-line segment. This acquisition will help it capture revenues in the mobile infrastructure market, with a range of services that also emphasise data traffic. |
Outlook | Some partners—such as Motorola—may begin re-examining their relationship with Starent, while Cisco is moving into market adjacencies that may increasingly threaten partners in the server market. |
Cisco has announced that it has made its second US$3-billion acquisition bid in as many weeks, with a US$2.9-billion bid to buy mobile infrastructure technology vendor Starent Networks approved by the boards of directors of both companies. This follows the acquisition of video infrastructure and conferencing/telepresence equipment vendor Tandberg (see World: 2 October 2009: Cisco Makes US$3-bil. Offer for Video Company Tandberg). Starent provides multimedia core technology and service convergence platforms for carriers with software and hardware products that provide core network functions and services, including access from a wide range of radio networks to the operator's packet core network with individual subscriber management and network traffic flow-control capabilities. They manage subscriber sessions, moving between networks and apply billing and other session policies. The products combine system intelligence, computing power, memory, and traffic-handling capabilities to integrate the multiple network functions and services needed for the delivery of advanced multimedia services, including video, internet access, voice-over-IP, e-mail, mobile TV, photo sharing, and gaming.
Starent will become the new Mobile Internet Technology Group within Cisco, led by Starent Networks' President and Chief Executive Officer Ashraf Dahod, operating within Cisco's Service Provider Business, which is led by Pankaj Patel, senior vice-president/general manager.
Starent was founded in 2000 and completed an initial public offering in 2007. It has around 1,000 staffers, including 449 engineers at the end of 2008, and revenues in 2008 of US$254.1 million were up by 74% year-on-year (y/y). Net income of US$60.5 million was up from US$11.5 million the prior year. Cash stood at US$369.4 million, up from US$233.6 million a year earlier, and the company was debt-free. Product lines include multimedia core technology and service convergence platforms, Serving GPRS Support Node (SGSN), and also launched products providing access and security gateway functionality for femtocells and wireless local area networks.
Outlook and Implications
Starent noted in its 2008 annual report that it has been producing equipment to facilitate multimedia services, enabling the identification and management of individual communication sessions, handling high-traffic loads, simplifying legacy network architectures, delivering quality of service and high availability, and supporting multiple radio access technologies. This was often done through fitting network infrastructure originally designed for fixed-line and enterprise networks such as re-purposed routers, switches, and enterprise servers—Cisco specialised in routers and switches although it has limited entry to the server market, bar specialised servers for unified computing products aimed at data centres announced earlier in 2009 (see World: 18 March 2009: Cisco Pushes into Data Centres with Server Initiative). That was noted as potentially treading on the toes of partners such as Dell, IBM, and Hewlett Packard. Starent's purpose-built products aim to simplify the packet network, improving performance, reliability, and scalability while enabling new services and flexibility at lower operating costs. Although the enterprise servers were not targeted at supporting wireless services, this obviously presents some additional points of crossover and competition.
Starent has contracts with major operators including KDDI, Bouyges, Verizon for the 4G Long Term Evolution (LTE) deployment, and Sprint/Clearwire for its WiMAX deployment (see Japan: 30 June 2009: KDDI Deploys Starent Networks' Security Gateway for Wi-Fi Services, United States: 18 February 2009: Verizon Taps Ericsson and Alcatel-Lucent for LTE Upgrade, France: 9 December 2008: Bouygues Taps Starent Multimedia Core-Networking Solution, and United States: 2 April 2008: Sprint Announces Xohm Partner Developments, but No Joint Venture). Starent also signed a major deal with Motorola at the start of the year, providing the packet core components for that vendor's end-to-end networking solutions. Although Cisco does not attempt to compete directly for the wide area radio access network—at least with the main mobile wireless network standards (GSM and CDMA)—this would represent something of a competitive conflict that Motorola would likely address (see World: 26 January 2009: Starent Signs Partnership with Motorola).
This is the second purchase in Cisco's recession-busting acquisition run (see United States: 18 May 2009: Cisco Targets Rapid Expansion—Report). Cisco ended the fiscal year ending July 2009 with some US$35 billion in cash and equivalents with which to fund acquisitions, and while revenues fell 8.6% y/y to US$36.1 billion and profits have been hit by the recession, falling from US$8.1 billion in 2008 to US$6.1 billion, Cisco remains strong and aggressive in building up a broader portfolio of products that will tap into growing data traffic—particularly from video services, from fixed teleconferencing to now providing greater support for mobile services—including video communications.