Cisco Systems Inc. this week acquired two more companies to help add to its product line the ability to combine voice and data networks to keep up with changing Internet traffic.
San Jose-based Cisco bought Cerent Corp. and Monterey Networks Inc. for a combined $7.4 billion in stock. Cerent, in Petaluma, Calif., develops products with various forms of compression and multiplexing that increase the amount of data that can flow through a fiber-optic connection. It also allows connections to traditional packet-switched networks and the ability to increase bandwidth allocations.
Richardson, Texas-based Monterey makes cross-connect products that can boost capacity at the core of a network, where traffic is highest.
Earlier this year, Cisco bought other vendors for their optical networking and data/voice convergence capabilities, including Pipelinks Inc., GeoTel Communications Corp., TransMedia Communications Inc. and StratumOne Communications, and invested $1 billion in KPMG Peat Marwick LLP.
The optical network market is the next important arena in networking and telecommunications, said Andrew Cray, an analyst at Boston-based Aberdeen Group Inc. Cerent's and Monterey's products "significantly add intelligence to optical networking" because before now, "it was very dumb and didn't do much" except provide bandwidth from point to point, he said.
The acquisitions give Cisco more offerings to large companies that want to combine voice and data and run high-demand applications on their networks. But they also put Cisco in competition with Lucent Technologies Inc. and Nortel Networks Inc. and other companies that have traditionally sold to Internet service providers and telecommunications vendors, analysts said.
"Cisco faces a significant challenge because it will have a different type of customer than its history," said Jim Slaby, an analyst at Giga Information Group Inc. in Cambridge, Mass.
But if Cisco can be "as successful in telecommunications as it is in hardware, then [entering the optical network market] is great," said Scott Eggers, director of information services at Wham-O Inc., a San Francisco toy maker. The question for Cisco is how it will structure its products and prices for end users, he said.