Cisco To Acquire Mobile Infrastructure Specialist Starent Networks

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Cisco Tuesday said it would acquire Starent Networks, which supplies IP-based mobile infrastructure products to mobile operators to help streamline the movement of data to mobile devices and computers. Cisco said it would pay $2.9 billion, or $35 a share, for the Tewksbury, Mass.-based company.

Starent makes hardware and software to enable better management of data as it moves around on wireless networks and lands on smartphones, notebooks and other pieces of a mobile infrastructure. The company supports WiMax technology and has done much of its past business with major telecoms, particularly Verizon. Its portfolio includes core network functions and services for managing 2.5G, 3G and 4G radio network access to mobile operators' packet core networks.

For Cisco, the deal is a bet on products that help manage the increasingly large volumes of data -- including video -- that travel over wireless networks to users' laptops and mobile devices. It's the latest in a string of acquisitions by Cisco that in recent months have seen Cisco gobble up video conferencing market leader Tandberg and also buy Flip video maker Pure Digital.

"Cisco and Starent Networks share a common vision and bring complementary technologies designed to accelerate the transition to the mobile Internet, where the network is the platform for service providers to launch, deliver and monetize the next generation of mobile multimedia applications and services," said Pankaj Patel, Cisco's senior vice president and general manager, service provider business, in a statement.

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Starent reported revenue of $254.1 million for its fiscal year 2008, a 74 percent increase, year-over-year, from 2007. The company was founded in 2000, completed an initial public offering in 2007, and has about 1,000 employees worldwide.

According to the joint statement, Cisco and Starent Networks will operate as separate companies before the acquisition is completed, which Cisco said it expects to close in the first half of 2010 provided it clears various regulatory and financial requirements.

Once the acquisition is finished, Starent will become Cisco's new Mobile Technology Group. Starent President and CEO Ashraf Dahod will lead the group and report to Patel.

"Combining Cisco's strength in video and IP with Starent Networks' leading mobile infrastructure solutions creates a compelling portfolio of products that provides an integrated architecture to offer rich, quality multimedia experiences to mobile subscribers on 3G and 4G networks," Dahod said in the statement.

"We are very pleased that Starent Networks will be joining the Cisco team, and we believe their products and engineering talent will greatly benefit our service provider customers as they build out their mobile Internet offerings," added Cisco Chairman and CEO John Chambers in the statement.

Patel, Dahod and Cisco Chief Strategy Officer and Senior Vice President Ned Hooper suggested on a conference call that Starent's portfolio would be of greatest benefit to partners developing solutions around both 3G and the move to 4G wireless networks.

Hooper further said that Cisco would continue to be "aggressive" in driving acquisitions, and of the the back-to-back announcements of Tandberg and Starent, said "both of those are acquisitions that germinated quite some ago and matured at the same time."

"Cisco's Starent acquisition is strategic for wireless data, as the wireless market migrates to LTE/4G," wrote UBS analyst Nikos Theodospoulous in a research note. "Cisco already sells routers with Starent in the evolved packet core. Cisco will now have a complete wireless data offering for 4G/LTE. Cisco is likely to remain aggressive in M&A and would not rule out another acquisition by year end in addition to [Starent] and Tandberg, in our view."

Theodospoulous further noted that the acquisition will harm Cisco rival Juniper, seeing as Starent is a Juniper partner for wireless data access.

"Juniper will no longer have an evolved packet core partner and no other obvious candidates exist in this market—likely impacts Juniper in AT&T's IP domain where Juniper was working with Starent. We still see Juniper as having a heavy R&D load ... Juniper may need to consider an acquisition to help alleviate the 2010/2011 R&D load," he wrote.

Theodospoulous also pointed out that Cisco's acquisition price of $35 per share for Starent represents almost 40 times Starent's earnings estimates for fiscal 2010 and 7.4 times sales estimates -- the highest price-to-earnings multiple Cisco has paid for an acquisition since it bought Webex in 2007.