SAN FRANCISCO — Cisco Systems continued to show just how serious it is about video conferencing, announcing late Wednesday night the $3 billion acquisition of Tandberg, a Norwegian video communications company.
Cisco has sold expensive, room-sized video conferencing systems to companies that it calls TelePresence systems. Tandberg has similar technology but also sells smaller-sized, cheaper conferencing units. In addition, Tandberg has specialized software for managing video conferencing systems and for creating connections between conferencing systems that rely on different underlying technology.
“It really enables us to build out our portfolio,” said Ned Hooper, a senior vice president at Cisco.
Cisco’s corporate video conferencing products require the company to outfit a customer’s conference room with multiple, large displays, networking equipment and even special tables, chairs and wall paint. By contrast, Tandberg has a range of gear, including high-definition video systems that can sit on desks or be used with personal computers.
The all-cash deal has been recommended to Tandberg’s shareholders by that company’s directors and stands as an 11 percent premium over Tandberg’s closing price on Wednesday. Tandberg reported $809 million in revenue last year, and has close to $200 million in cash.
In recent years, Cisco, based in San Jose, Calif., has been one of the technology industry’s most aggressive companies when it comes to acquisitions. It has bought close to 40 companies over the past five years, including the $6.9 billion purchase of the set-top-box maker Scientific-Atlanta and the $2.9 billion purchase of the Web meeting software maker WebEx. Cisco also bought Pure Digital, which made the popular Flip video recorders for consumers , earlier this year for $590 million.
The acquisitions have fueled Cisco’s mission of backing products that generate more Internet traffic that in turns drives demand for the networking hardware that has long been the core of its business.
The deals have also thrust Cisco into new markets like consumer electronics, business collaboration software and computer servers where the company now finds itself in direct competition with its traditional business partners like Hewlett-Packard, Microsoft and I.B.M.
During an interview last week, Cisco’s chief executive John T. Chambers boasted that the company has managed to move into a grand total of 30 new markets through acquisitions and its own internal product development.
“We are involved in things that may shock you,” Mr. Chambers said, referring to s like smart grid technology for cities’ power systems and the construction of entertainment and networking systems for sports stadiums.
With $35 billion in cash - the highest total in the technology industry - Cisco appears set to continue with this expansion.
“You will see us move with a lot of acquisitions over the next year,” Mr. Chambers said.
Still, companies like Cisco, Dell and EMC must find ways to match the heft of H.P. and I.B.M., which have massive technology services businesses to complement their hardware and software pursuits.
Rather than acquiring a large services company, Cisco will continue to partner with independent players like Accenture and Wipro, Mr.
Chambers said.
“I think that is a more scalable, faster speed and less confrontational model,” he said.
As Cisco moves into new areas, it faces the difficult task of trying to find businesses with profits that can match those gained from its networking hardware. Cisco’s routers and switches produce 65 percent gross profit margins.
Mr. Hooper stressed that Tandberg has gross margins of 66 percent. “It fits squarely into our operating model,” he said.
Tandberg has had the most success selling video conferencing systems to large companies in North America and Europe. Cisco plans to use Tandberg’s technology to help it go after smaller companies and eventually to target consumers, Mr. Hooper said.
by ASHLEE VANCE
Source: New York Times
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