Cisco Flips The Script With Pure Digital Buy

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"The acquisition of Pure Digital is key to Cisco's strategy to expand our momentum in the media-enabled home and to capture the consumer market transition to visual networking," said Ned Hooper, senior vice president of Cisco's Corporate Development and Consumer Group, in a statement. "Pure Digital has revolutionized the way people capture and share video with Flip Video. This acquisition will take Cisco's consumer business to the next level as the company develops new video capabilities and drives the next generation of entertainment and communication experiences."

Cisco said it will pay roughly $590 million in stock in exchange for all shares in privately held Pure Digital, based in San Francisco. Speculation that Cisco was prepping to buy Pure Digital has increased over the past weeks, as Cisco looks to round out its consumer technology strategy and capture new markets.

Just last week, Cisco revealed that its Consumer Channel Network, its consumer-focused reseller program, has attracted 2,500 partners in its first two months as solution providers hone in on the burgeoning market for home networking, convergence, entertainment devices and home theater technologies.

Pure Digital's line of Flip camcorders has taken the market by storm, with more than 2 million units sold. Flip cameras are small, easy-to-use handheld videocameras aimed at users who want to capture footage and upload it to popular Internet video sites. The embedded FlipShare software lets users organize and edit videos and share them via YouTube, MySpace, AOL Video and other video sharing Web sites. Reports suggest that Pure Digital has sold more than $200 million worth of the pint-size Flip cameras, which range in price from $130 to $230, in the past couple of years. Pure Digital holds roughly 25 percent of the camcorder market.

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"Flip Video puts the power to instantly capture, edit and share video in the hands of everyday consumers," Pure Digital Chairman and CEO Jonathan Kaplan said in a statement. "By combining forces with Cisco, we join a company that shares our passion for video and whose global scale and tremendous technology expertise we expect will enable us to quickly expand and enrich the Flip Video experience."

The Pure Digital buy will fall in line with Cisco's recent push into video and Web 2.0 technologies.

"I cannot overemphasize the importance of any device to any content over any combination of networks enabled by Cisco's technology architecture approach, but it also is important that video will play in not only communications to life but also in loading networks, what we call visual networking," Cisco CEO John Chambers said last month in Cisco's quarterly earnings call.

When the acquisition closes, which is expected in the fourth fiscal quarter of 2009, the Pure Digital team will become part of Cisco's Consumer Business Group, which includes the Linksys by Cisco brand of home networking, audio and media storage products. Kaplan will be general manager of the combined organization and report to Hooper.

Along with the $590 million in stock, Cisco will also provide up to $15 million in retention-based equity incentives for continuing employees.

According to Cisco, the Pure Digital purchase falls in line with its "build, buy and partner" strategy to "move quickly into new markets and capture key market transitions."