Merger Could Benefit Cisco And Linksys Partners


Cisco's $500 million acquisition of Linksys gives it a strong ally that scored high marks from solution providers surveyed for this year's CRN recent Channel Champions survey.

In the survey, Linksys and its closest competitor, D-Link, scored slightly higher overall marks than Cisco among solution providers with $5 million or more in annual sales. But when solution providers of all sizes were taken into account, Cisco beat its competitors handily in all technology and channel program areas.

Linksys' corporate solution provider partners will be integrated into Cisco's channel programs, said Victor Tsao, CEO and president of Linksys. That should be good news for Linksys partners given what solution providers had to say about Cisco in the Channel Champions survey. The vendor won by the largest margin in the area of support over project life, and partners also gave Cisco high marks for keeping them informed of product line and channel program changes.

Tsao told CRN that Linksys, based here, will be treated as an independent division of Cisco--the first time the vendor, which has bought more than 80 companies, has decided to do that.

Cisco CEO John Chambers wants Linksys to continue focusing on consumer and SOHO markets and to keep its own brand, Tsao said. Corporate Linksys products, however, will be sold through the Cisco channel, which means that Linksys will not develop its own channel programs, he said.

One of the reasons Cisco wants to keep Linksys independent is that Cisco follows more of a build-to-order business model and its products typically have a gross margin of 70 percent, Tsao said. That compares with Linksys products, which typically are stocked on store shelves and have a gross margin of 30 percent, he said.

Linksys boasts an extensive line of routers and other equipment used in home networks. That market has become an increasingly lucrative space for solution providers as high-speed Internet connections drive the convergence of networked IT solutions in homes.

"Fueled by consumer broadband adoption, the home-networking space has experienced mass market acceptance," said Chambers in a statement.

Linksys is owned by Tsao and his family.

"At this stage of our growth, merging with Cisco makes a lot of sense," Tsao said. "We can take advantage of technologies from Cisco to make some cool new products. The market is maturing so there is some consolidation, and this will help us with international expansion."