Cisco acquiring Tandberg?

Cisco Systems continued to show just how serious it was about videoconferencing, announcing late Wednesday night the $3 billion acquisition of Tandberg, a Norwegian video communications company.

Cisco sells companies expensive, room-size videoconferencing systems known as TelePresence systems. Tandberg has similar technology but also sells smaller, cheaper conferencing units. In addition, Tandberg has specialized software for managing videoconferencing systems and for creating connections between 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 videoconferencing products require the company to outfit a customer’s conference room with several large display screens, 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 tender offer 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 in the last 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. This year, Cisco bought Pure Digital, which makes the popular Flip video camera for consumers, for $590 million.

The acquisitions have suited Cisco’s mission of backing products that generate more Internet traffic, which in turn 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 had managed to move into 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 things like smart-grid technology for municipal power systems and the construction of entertainment and networking systems for sports stadiums.

With $35 billion in cash — the most among technology companies — 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 Hewlett-Packard and I.B.M., which have huge 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 had gross margins of 66 percent. “It fits squarely into our operating model,” he said.

Tandberg has had most of its success selling videoconferencing systems to large companies in North America and Europe. Cisco plans to use Tandberg’s technology to help it pursue smaller companies and eventually to sell to consumers, Mr. Hooper said.

A number of companies make videoconferencing systems. Like Cisco, H.P. sells large systems aimed at companies that need sophisticated tools for their video meetings, like the ability to display graphics and movies.

Microsoft and I.B.M. have focused on adding PC-based videoconferencing to their collaboration software lines, while start-ups like LifeSize have tried to undercut the larger players on price.

*Interesting news indeed*

source:nytimes