Cisco Systems, hot on the trail of ways to improve the innards of its switches and routers, revealed Feb. 24 that it has acquired high-speed networking hardware maker Lightwire for $271 million in cash.
The deal, which is expected to close in April, is a clear indicator that Cisco intends to continue to invest in optical networking products to improve its network switches.
This is the second significant optical IT acquisition the world's largest networking company has made in less than two years. Cisco completed its acquisition of coherent optical transport technology provider CoreOptics in July 2010.
Santa Clara, Calif. and Allentown, Pa.-based Lightwire was the first to develop a proprietary process to make a new breed of high-speed optical transceiver -- a chip that is used to transmit data along a precise beam of light. These processors are smaller and use less electricity than standard chips, and Cisco will use the efficiencies to make its switches capable of carrying higher volumes of data at lower cost.Lightwire's secret sauce is called CMOS-based (complementary metal-oxide-semiconductor) optical transceiver technology.
"We believe Cisco's increased acquisition activity in the optical component space is tacit recognition that optical technology will continue to gain importance in carrier networks, likely somewhat at the expense of the routing market," analyst George C. Notter of Jefferies & Company said in a media advisory. "We view the acquisition as a potential long-term negative for Finisar."
Finisar is a longtime supplier of non-optical transceiver components to Cisco.
"Of course, Cisco is a critically important customer for Finisar, contributing more than 10 percent of total company revenues in FY11 and 22 percent in FY10. While we expect it will take some time for Cisco to integrate and leverage Lightwire's technology, it seems to us that Cisco could be seeking to vertically integrate to some degree in optical -- a negative for transceiver suppliers like Finisar," Notter wrote.
Chris Preimesberger is Editor of Features and Analysis at eWEEK. Twitter: editingwhiz.