Cisco Sells Linksys, Acquires Intucell To Advance Software Strategy

By David Zielenziger | January 25 2013 11:35 AM

Cisco Systems Inc. (NASDAQ:CSCO), the No 1 provider of Internet products, is advancing its strategy to boost profit by concentrating more on software than hardware as networks grow more powerful.

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Consumers using Wi-Fi at home tend to lose an average of 30 percent of download speed and face an increase in latency of 10-20 percent, according to a new study from research firm Epitiro.

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The San Jose, Calif., giant has agreed to sell its consumer Linksys line, which makes home Wi-Fi routers, to private Belkin International, a competitor, for a sum that hasn’t been disclosed.

Meanwhile, it tapped its $45 billion cash and investment pile to acquire Intucell, an Israeli developer of software-defined network (SDN) products. The price is $475 million in cash plus unspecified retention-based incentives for senior executives, who will be integrated into Cisco’s Service Provider Mobility Group, when the deal closes during the third quarter.

Intucell's specialty is devising software for mobile phone networks that allows operators to manage speeds, adjust transmission and transmit data for emerging 4G long-term evolution (LTE) networks. The company was founded in 2008 by Rani Wellingstein, who sold an earlier company, NKO, an Internet telephone provider, to ECI Telecom, a larger Israeli equipment provider.

The moves are part of CEO John T. Chambers’ strategy of emphasizing SDN and software more than hardware, in the future.

“This is a market in transition and the role of the network is going to take a big role,” he told analysts at the company’s strategy briefing on Dec. 7. Software acquisitions would be part of future moves, he said.

Last month, Google Inc. (NASDAQ:GOOG) agreed to sell its Motorola home business that makes set-top boxes and similar Internet consumer products, to Arris Corp. (NASDAQ:ARRS), for $2.35 billion in cash and shares. That will leave Google, which also wants to concentrate on software, with a 16 percent stake in Arris, whose servers are used by the cable providers.

Cisco, which acquired then-private Linksys, of Irvine, Calif., in 2003 for $500 million, said it would work with Belkin, of Playa Vista, Calif., on future software products for the service provider market.

With about 30 percent of the U.S. retail sector now, that would suggest future links to the biggest cable providers headed by Comcast Corp. (NASDAQ:CMCSA) or Verizon Communications Inc. (NYSE:VZ), which install home systems. Mororola Home also sells to Comcast as well as to Time Warner Cable Inc. (NYSE:TWC).

Shares of Cisco rose 13 cents to close at $21.15 in Friday trading, just 15 cents below their 52-week high set last March. With dividends, they’ve gained 9.2 percent over the past year.