Cisco Systems buying Acacia Communications in $2.8-billion deal

Andrew Cummings
July 10, 2019

Under the terms of the deal, Cisco will pay US$70 per Acacia share, or a net US$2.6 billion, in cash.

Acacia said it would continue to serve its existing customers, which include Cisco itself.

Cisco's stock was trading at $56.49 a share, up 53% on Tuesday.

"Cisco's optical portfolio was mainly for short range data center connections, and now gains Acacia's skill set in areas such as metro, long-haul, and undersea", Cash said. The deal is expected to close in the second half of Cisco's July 2020 fiscal year, subject to regulatory approval.

In a blog post explaining the rationale behind the move Bill Gartner, Cicso's VP of optical systems and optics, wrote that the three primary challenges for cloud and service providers across the various networking platforms were now to increase capacity within the existing fiber-optic infrastructure; drive down the cost-per-bit ratio; and to increase the level of automation. "The acquisition of Acacia will allow us to build on the strength of our switching, routing and optical networking portfolio to address our customers' most demanding requirements". Cisco accounts for about 18 per cent of its revenue, according to Bloomberg's supply-chain analysis. In February, Cisco closed a deal to buy optical-semiconductor firm Luxtera for $660 million, bringing it the advanced optical technology customers will need for speed and throughput for future data centre and web-scale networks.

"Players like Acacia have the next-gen technology needed to support optics and Cisco wants that intellectual property", said Faisal Bhutto, executive vice president of networking, cloud and cybersecurity for Computex Technology Solutions, a Cisco Gold partner.

Cisco offers a portfolio of optical systems to support webscale, service provider, enterprise, and public sector customer segments. -China trade tensions on Acacia-particularly given the on-again, off-again USA bans of purchases from ZTE, Acacia's largest customer, in spring 2018 and of Hwawei, another key customer, in spring 2019.

Ultimately, Cisco is hoping that Acacia's technology will enrich its optical systems portfolio.

Cisco said the acquisition should help it tap into a trend from chassis-based optical systems to pluggable optics. These are compact circuits that convert packets from electricity to light and vice versa so they can be sent via optical cables.

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