Cisco Snags Procket - InformationWeek

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6/17/2004
12:29 PM
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Cisco Snags Procket

It's paying about $89 million for some key assets of the router maker, including its intellectual property and most of its engineering team.

Cisco Systems said Thursday that it's buying the assets of router-maker Procket Networks.

Procket sells high-end, high-bandwidth routers to service providers, a market that Cisco has been aggressively courting. Over recent years, Cisco has lost market share in the space to Juniper Networks; Cisco still dominates the market, with a 59% share compared to Juniper's 34%, but that percentage is down from 70% two years ago.

Yet in some ways, it's a curious purchase. Just last month, Cisco launched the CRS-1, or Carrier Routing System, a new router which fills holes in the competition against Juniper, and which cost the company four years and $500 million to develop.

As such, Pacific Growth Equities analyst Erik Suppinger says Cisco may be looking to benefit more from Procket's customers than its technology. "It would clearly have overlap with their existing product line," he says. "But they do have highly regarded technology, and it is installed in some sizable accounts."

In a statement, Cisco execs indicated they were making the purchase for access to Procket's engineers, more so than for its product line. It's a spin that falls in line with the cagey answer Cisco CEO John Chambers gave to a question during a keynote at Bear Stearns' 15th Annual Technology Conference in New York on Tuesday. "I'm not going to buy another router company for a router," he said when asked about rumors of the purchase. "I could not be more comfortable with our routing strategy."

Under the terms of the deal, Cisco will pay approximately $89 million for select assets of Procket, including its entire portfolio of intellectual property and a majority of the engineering team. The engineers will become part of Cisco's Routing Technology Group. Subject to regulatory approvals, the deal should close this fall.

Procket's sale is the understated coda to the life of a once high-flying technology star. The company, launched in 1999, was once one of the country's most highly valued startups, the result of $272 million in venture funding, and valued in 2002 at more $1.5 billion. The venture wasn't able to procure many customers since launching its first product more than a year ago.

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