Cisco Systems Inc is buying Flip digital camcorder-maker Pure Digital Technologies as it seeks to expand in the consumer market amid a slowdown in its traditional routers and switches business.
The world's largest maker of communications networking equipment said on Thursday it would pay $590 million in stock to purchase all of privately held Pure Digital's shares.
Pure Digital, whose pocket-sized Flip Video camcorders let people quickly make and share videos on the Web, has sold more than 2 million units in the United States so far, Cisco said.
Cisco, which has about $29 billion in cash, recently said it was looking for acquisitions, especially to bolster its presence in consumer electronics.
Flip Video comes with a software called FlipShare, which helps users to easily move videos to online sharing sites like YouTube and MySpace.
Analysts say it has been able to make the most of its acquisitions, including cable set-top box maker Scientific-Atlanta and home router maker Linksys, by ensuring the deals create demand for its other various products.
Pure Digital will add to Cisco's arsenal of products aimed at driving increased network bandwidth, similar to Cisco's video conferencing products, said UBS analyst Nikos Theodosopoulos. Cisco also owns online video conferencing company WebEx.
As more consumers upload video content to the web, it will also drive demand for Cisco's traditional products, switches and routers, he said.
The analyst, however, added that the move was surprising given Chief Executive John Chamber's recent comments that he was not interested in acquiring a consumer device company.
Chambers, in late February, had said he was not interested in a device but that the company would expand into new products and that there would be multiple, small acquisitions.
Cisco said the Pure Digital deal is likely to close in the fourth quarter. It will also pay up to $15 million in retention-based incentives to employees who continue at the acquired company, it said.
Cisco shares fell 2.0 percent to $16.17 in the morning session.
Pure Digital, based in San Francisco, is backed by venture capital investors including Sequoia Capital and Benchmark Capital.
(Reporting by Anupreeta Das and Ritsuko Ando; Editing by Maureen Bavdek and Derek Caney)