Cisco acquires Okena

Cisco Systems has moved to strengthen its position as a network security software provider, acquiring privately held Okena Inc. of Waltham, Massachusetts, Friday for US$154 million in Cisco stock.

Okena makes the StormWatch intrusion detection software. Marketed as an "intrusion prevention" program, StormWatch uses intelligent agents running on user desktops and servers to monitor those systems, intercepting and approving or rejecting a resource request from an application to the operating system based on a customer's application security policy, for example.

StormWatch can also detect attacks as they unfold by correlating actions at the local and network level, according to Okena.

In addition to StormWatch, Okena makes a policy generator module, StormFront, and a system administration module, StormTrack, which provides administrators with a view of host systems and applications.

The acquisition was approved by the boards of both companies and is expected to close in Cisco's fiscal third quarter, which ends in April.

Following the acquisition, Okena's products and staff will be rolled into Cisco's Virtual Private Network and Security Business Unit.

In a statement, Cisco said that the Okena technology will enhance Cisco's existing security portfolio, including a variety of hardware and software products such as policy and access control software, VPN (virtual private network) routers and intrusion detection system sensor hardware, as well as its PIX firewall software and hardware.

In recent months, Cisco has worked to bolster its reputation as a provider of secure networking products.

In November, the company announced a variety of security enhancements to its network product line, adding an embedded firewall for IP (Internet Protocol) data, voice and video to its Cisco 800 Series and SOHO 90 Series broadband routers for small and home offices and virtual private network (VPN) acceleration modules for its 2691, 3660 and 3700 series routers.

With plenty of cash in the bank, Cisco can also afford to elbow out other aspiring security players and to pay top dollar for technology that it wants, according to a security industry analyst.

"This is an example of the folks with deep pockets shutting out competitors who need to be more price sensitive," said Pete Lindstrom of The Spire Group, who estimated Okena's annual revenue at only around $7 million a year. Cisco didn't return a call seeking comment on Okena's revenue.

Integrating Okena may prove to be a challenge for the San Jose, California-based networking vendor.

"My initial reaction was that Cisco is a network device company, so why buy a host-based system?" Lindstrom said.

It is unlikely that Cisco will broaden its reach from the network edge onto hosts and desktops, Lindstrom said.

With more than $18 billion in revenue last year, Cisco might not find the relatively small server and desktop security market worth fighting for. Symantec Corp., a leader in that space, recorded revenue of just over $1 billion in 2002.

"It's hard for me to see that being a significant chunk of change for (Cisco) to go after," Lindstrom said.

A more likely scenario would be that Cisco will use the Okena technology to enhance its existing security product portfolio, according to Lindstrom.

For example, Cisco might tie the Okena StormWatch distributed personal firewall and IDS technology to its VPN hardware, requiring remote users to run the firewall before establishing a VPN connection to a network.

That could spell trouble for Cisco's existing firewall partner, Zone Labs Inc., Lindstrom said.

Going forward, Cisco will have to clarify its plans for the Okena technology while retaining Okena's development staff and, hopefully, its senior leadership.

In the meantime, the high valuation put on Okena -- estimated at around 18 times the company's annual revenue -- is likely to have other small security companies sitting up to take notice, Lindstrom said.

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