Cisco to Acquire Data Storage Co.

The deal, whose final terms are yet to be determined, is likely to be Cisco's largest buy since the networking giant slowed its acquisition spree shortly after the 2000 collapse of the high-tech bubble.

Cisco, which already holds a stake in Andiamo, will exchange Cisco stock for Andiamo shares. The final price, which Cisco said could be as high as $2.5 billion, will be based on Andiamo's sales in the three months prior to closing as well as Cisco's share price and sales.

Cisco is already the leading maker of equipment that directs traffic over the Internet and other networks. Chief executive John Chambers has previously hinted that storage could be the next major opportunity.

"This acquisition supports Cisco's strategy to enter into new growth markets, such as storage networking, where we believe we have the potential to be the No. 1 or 2 player," he said Tuesday.

Cisco will be able to offer customers storage products that work with networks built with its data-traffic equipment, a market it dominates.

"Andiamo's technology blends the benefits of data networking and storage networking," Chambers said.

The high-end storage area network market is expected to grow from about $1.2 billion in 2002 to $4.3 billion in 2006, according to the research firm Gartner Group.

Cisco also announced Tuesday that it would introduce a new line of storage switches developed by Andiamo. The first products are expected to be available by the end of this year.

The deal, which has been approved by both companies, is expected to close in Cisco's fiscal 2004 third quarter, which runs from February to April.

Between 1993 and December 2000, Cisco acquired 71 companies. The buying ended as Cisco's high-flying business crashed and its stock fell 80 percent. The company also cut 8,500 jobs.

In recent quarters, however, Cisco's earnings have been a relatively bright spot in the otherwise bleak universe of networking gear suppliers.

Earlier this month, Cisco reported it earned $1 billion, or 14 cents per share, excluding special items, in its fiscal fourth quarter. Analysts were expecting a profit of 12 cents per share.

"I think it does represent Cisco's continuing desire to make bets in new growth markets," said Craig Griffin, Cisco's director of business development.

San Jose-based Andiamo, which is Italian for "let's go," was founded in January 2001 and currently has about 270 employees. They will join the Cisco Storage Technology Group when the deal closes.

Shares of Cisco gained 1 cent to close at $14.73 in trading Tuesday on the Nasdaq Stock Market.

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