CFLO rumors.....
OCTOBER 20, 2000
Is Cisco Buying CacheFlow?
In the networking business you can't believe everything that you hear, but you can certainly repeat it.
Here's what we're repeating: The latest rumor bouncing around Wall Street is that Cisco Systems Inc.
(Nasdaq: CSCO) is looking to buy CacheFlow Inc. (Nasdaq: CFLO), maker of network appliances that
store frequently requested Web content so end users don't overburden a content provider's originating
servers.
Light Reading sources have yet to confirm how close the two firms are to a deal, but its hard not to notice
CacheFlow's shares have risen 25 percent in the past week (including today's 10 percent decline). It's
hard to say whether any of this has to do with Cisco, as CacheFlow recently bought Entera Inc. and is
generally a volatile issue anyway.
Regardless, analysts who watch both companies are saying that a CacheFlow-Cisco combination makes
good sense. "A marriage between Cacheflow and Cisco would fit well into Cisco's approach to building
content delivery networks," says Andre Desautels, a principal at Trilogy Advisors.
Why would Cisco love CacheFlow? Let us count the ways.
First of all, CacheFlow is a pure-play company in a market that is just beginning to take off. Only in
recent months has it become apparent that caching wouldn’t be subsumed by the buildout of content
delivery networks -- the set of solutions used to get content closer to end users.
Instead of being a flash-in-the-pan, caching is helpful to such solutions and can be used in specific parts
of the network to address problems such as traffic congestion and server load-balancing.
Citing market research from Dataquest, Philip Muscatello, an analyst with SunTrust Equitable Securities,
says that the caching market will grow to $3.4 billion by 2003. "But even that number seems low," he says.
Second, analysts familiar with CacheFlow’s product agree that it beats the sneakers off Cisco’s caching
product. And CacheFlow's product line includes appliances built to handle traffic from T1 connections up
to OC3-level traffic.
Of course, Cisco tends to stick to its guns even when they’re not loaded. So it’d be interesting to see if
Cisco'd try to position a CacheFlow purchase as something other than a fix for its own failure to develop
something substantial internally.
Cisco salespeople have been told that Cisco will have a market-leading cache product very soon, says one
Light Reading source close to Cisco. However, according to the same source, Cisco product managers
and customers have said Cisco's cache engine is itself becoming more competitive. The question remains
how Cisco envisions making the leap to market leader.
Of the firms in the caching business, CacheFlow would be the most attractive, because it’s a pure-play
company and sells mostly to the enterprise market, where Cisco makes its bed.
Network Appliance Inc. (Nasdaq: NTAP) doesn’t fit that description, and it has a larger presence in the
network-attached storage market, anyway. An even less likely target for a Cisco caching acquisition
would be Inktomi Corp. (Nasdaq: INKT), which is also not a pure-play and sells mostly to the service
provider market.
CacheFlow has lost money since day one, but that may soon change. As of July 31, 2000, the company
had an accumulated deficit of $108.1 million. However, CacheFlow’s first-quarter revenues were up 75
percent sequentially from the previous quarter. From the quarter prior to that, its revenues had hopped
60 percent -- a sign that it may be just beginning a growth spurt.
Cisco, too, has been increasingly interested in all facets of building a complete content delivery network
for its customers. In October 1999, Cisco bought Tasmania Networks for its network caching software. In
May 2000, Cisco bought Arrowpoint Communications for its switches that speed Web content delivery.
And in July 2000, Cisco bought Netiverse for its software that will be used to speed up network devices.
One more bit of trivia: When CacheFlow completes its $440 million purchase of Entera, Cisco and
CacheFlow will have a common board member in Entera CEO Steven West.
Cisco declined to comment on the speculation. CacheFlow didn't return calls by press time.
-- Phil Harvey, senior editor, Light Reading lightreading.com |
