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Cisco Systems Inc.s proposed acquisition of Procket Networks Inc., announced on Thursday, is a move intended to bolster future product development beyond Ciscos brand-new high-end router targeted at telecommunications providers.
Cisco, rather than acquiring somewhat redundant routing products from the struggling startup, picked up Prockets intellectual property around semiconductor development along with a highly prized group of engineers with intimate knowledge of that technology.
“It was a way for Cisco to pick up great engineering talent—a team that already exists. I doubt this will derail ongoing development or plans for the new CRS-1 router,” said Dave Passmore, research director at The Burton Group, in Sterling, Va. “Nor is it going to change their plans for eventually migrating IOS over to the new version of IOS in the CRS-1,” he added.
Instead, Cisco acquired Procket intellectual property around the customer-owned tooling silicon development methodology, industry insiders believe.
“Procket had always asserted that their semiconductor architecture allowed them to produce much lower price per port than Cisco 12,000 boxes or Juniper [high-end routers], and had significantly lower power consumption and heat dissipation than those vendors,” said Tom Nolle, the CEO of Voorhees, N.J.-based consulting firm CIMI Corp. “Procket is not intended to be an element in the initial CRS-1, but in the downsizing of that to the [Cisco] 12,000 and 7000 series [routers],” he added.
For Procket Networks, which had already spent most of the nearly $300 million in funding generated through several rounds from private investors, the acquisition was a means to keep the company going after it could not raise any additional funding from private investors. “It was an issue of cash for sales and marketing activity and to buy runway to garner more market share against incumbent players. The best route was for Procket to be acquired by Cisco Systems,” said Cary Hayward, director of marketing at Procket in Milpitas, Calif.
Ciscos proposed acquisition is for $89 million in cash, and it does not include the two routers that Procket currently markets.
“The investors figured this was the best they could do to cut their losses. They would have to put even more than the $300 million into the company, and the prospects didnt look good enough to do it,” said Passmore.
Procket, in pursuing another round of funding, held acquisition talks with a number of networking players, according to Hayward. Others rumored to have been in the bidding include Foundry Networks and Alcatel. But Cisco was the solitary bidder in the end.
Cisco intends to hire some 120 members of Prockets engineering team when the deal closes sometime this fall, according to a Cisco spokesman. The engineers will become part of Ciscos Routing Technology Group, under Senior Vice Presidents Prem Jain and Mike Volpi in San Jose, Calif.