The Wall Street Journal -- June 30, 1999
Technology:
Cisco to Buy StratumOne for $435 Million
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By Scott Thurm
Staff Reporter of The Wall Street Journal
Cisco Systems Inc. agreed to acquire closely held StratumOne Communications Inc., which designs chips for high-speed computer networking, for about $435 million in stock.
The acquisition is Cisco's 36th, and its sixth this year, as the San Jose, Calif., maker of computer-networking equipment continues its aggressive policy of buying technology it can't or doesn't want to develop internally.
Cisco already owns 5% of StratumOne, Santa Clara, Calif., following an investment earlier this year, and planned to use StratumOne's semiconductors in its next-generation switch for fiber-optic lines. Ammar Hanafi, Cisco's director of business development, said Cisco decided to buy StratumOne because of its "strategic value."
Cisco traditionally buys most of its chips from outside suppliers, but it helps design many of them. Two of its previous acquisitions were chip-design companies, Telebit Corp. in 1996 and Skystone Systems Corp. in 1997. Analysts said the deal demonstrates how chips are becoming more important as companies such as Cisco build devices to route more computer traffic faster over longer distances.
StratumOne's chips initially will go into Cisco devices that can process 10 billion bits of data a second. At those speeds, "if you don't have your own [intellectual property], you're dead," said Paul Weinstein, an analyst for Credit Suisse First Boston.
StratumOne Chief Executive Vijay Parikh agreed, saying his company chose to be acquired because executives concluded that equipment makers such as Cisco will want their own chips, limiting StratumOne's potential customers. "It's relatively unlikely that a strong market would emerge for products that systems companies consider part of their core competence," Mr. Parikh said. Stratum One, which was founded in 1997, has 78 employees but no revenue yet.
Cisco said it would exchange between 6.3 million and 7.7 million shares for all of StratumOne's shares and options outstanding. The acquisition will be accounted for as a pooling of interests, and is expected to close in the fiscal first quarter, which ends in October.
Cisco doesn't plan any charges as a result of the deal. It is Cisco's seventh acquisition of a company where it previously owned a minority stake.
In Nasdaq Stock Market trading, Cisco shares rose 56.25 cents to close at $62.50.
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Cisco's Chip DealCompany -- StratumOne Comm.Headquarters -- Santa Clara, Calif.Founded -- 1997CEO -- Vijay ParikhEmployees -- 78Funding -- $22.25 million from Cisco and three venture capital firmsProducts -- Design of semiconductors for high-speed networkingSource: The company
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