Experts baffled by Cisco acquisition

A Canadian channel partner, research analysts and chief rival said they were surprised and bewildered by Cisco Systems’ decision to enter the home networking market through the acquisition of Linksys.

Cisco Thursday said the

Linksys deal, which will cost the company US$500 million in stock, will give the company an immediate foothold among consumers and home offices. Linksys specializes in wireless routers and access points, network adapters with more than 70 products.

Dan Scheinman senior vice-president of corporate development, said in a conference call that Linksys will continue to operate as a separate unit. The firm’s low operating expense model will help the company compete in the price-sensitive retail channel. Linksys sells both directly to retailers and through distributors,

Scheinman said there were considerable channel opportunities for both companies through the acquisition.

“”Cisco can obviously help with the international distribution of these products,”” he said. “”We’re going to support the Linsys sales team’s ability to go into those strong international retailers and get shelf space. The combination of the two brands will allow that combination to be quicker and more powerful.””

IDC Canada analyst Dan McLean said the buyout seemed at odds with Cisco’s repeated strategy of focusing on networking customers that included a strong services component.

“”It seems kind of out there. You have to wonder what the strategy is behind this sort of acquisition,”” he said. “”I would expect that what they’re going to do is really look to their channels to drive business through you, but the bulk of their channels are strong services providers. They’ve gone through an exercise where they got rid of a lot of partners who didn’t have a lot in the way of services.””

At its worldwide analyst conference in Santa Clara, Calif. last November, Cisco said it had eliminated half of its 6,000 partners through a rigorous re-certification program, choosing to leave behind any of the partners who did not wish to participate.

At least one of Cisco’s premier partners was taken aback by the Linksys deal.

“”Maybe they’re looking at trying to get access to a whole other channel,”” said Dan Conaby, president of Oshawa-based Conpute. “”I just don’t see it being a major play through their existing channel.””

Cisco’s closest competitor in the networking space said the Linksys acquisition would put a tremendous strain on an organization that doesn’t have a margin model to facilitate it.

“”Their internal cost structure is built around high margin models,”” said Nick Tidd, president of 3Com Canada. “”This is so far

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Jim Love, Chief Content Officer, IT World Canada

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