Cisco to buy Cerent for $US6.9 billion

Cisco Systems yesterday announced its move into the optical transport segment of the networking market with the acquisitions of Cerent Corp for $US6.9 billion ($11 billion) and Monterey Networks for $US500 million ($794.1 million).

The move sets Cisco up to compete with Lucent Technologies and Nortel Networks in the market for optical networking over fibre optic cables.

"This new market for Cisco will be a double-digit, billion-dollar opportunity," Larry Carter, Cisco's chief financial officer, said.

The optical transport market is expected to be worth $US10 billion in 2002, Carter said. The optical transport technologies from Cerent and Monterey will result in Cisco offerings that will help service providers migrate from circuit-based networks to so-called "New World" cell and packet-based networks, he said.

Cerent's single-system optical transport equipment is designed around the internet, and allows service providers to rapidly accommodate changes in network traffic, according to Carter, while Monterey's optical cross-connect technology is used to increase an optical network's capacity.

Optical networks are expected to become a fast-growing segment of internet infrastructure, Carter said. "With this technology, Cisco can easily accommodate the changes needed in bandwidth traffic," he said. "The real issue here is how do you deal with internet growth?"

Both deals, which have been approved by the companies' boards of directors, are stock transactions and remain subject to regulatory approval.

Cisco will be able to gain market share in an area of networking that will allow data, voice, and video transmission, said James Slaby, senior analyst for Giga Information Group. "This [acquisition] further pushes Cisco into the core of service provider networks, specifically the next generation ones that are going to be nothing but optical," Slaby said.

California-based Cerent has 287 employees, and Monterey, based in Richardson, Texas, has 132 employees. Upon completion of the acquisitions, the companies will both be business units within the Transport Group reporting to Kevin Kennedy, senior vice president of Cisco's service provider business.

The acquisitions will bring the total number of Cisco employees working in optical networking to about 900 people.

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