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Update: Cisco to acquire Airespace for $450 million

Cisco confirms the long-rumored acquisition, looking to shore up its WLAN product line. However, one expert questions how the companies and their products will mesh.

After weeks of rumors and speculation, networking giant Cisco Systems Inc. is acquiring a wireless LAN switch startup to augment its wireless networking products line.

Part of an effort to expand its presence in the growing wireless segment of the market, Cisco said late Wednesday it would lay down $450 million in stock to acquire privately held Airespace Inc.

The deal with San Jose, Calif.-based Airespace is subject to regulatory approval and is expected to close in Cisco's fiscal 2005 third quarter, which ends in April.

Airespace's products include WLAN controllers, access points, software and security. The company was founded in 2001 and has about 175 employees.

Airespace has always aimed at being best of breed. Cisco is content being middle-of-the-road because they own most of the road."
Michael Disabato
Burton Group
"Airespace is the leading WLAN system vendor after Cisco, and has been Cisco's main competition in the enterprise in recent months," said Michael Disabato, Burton Group's service director. "If you want to eliminate the competition, one way is to buy them."

The WLAN switch market has been dominated by a host of startup companies, such as Airespace, which offer wireless hardware combining security, management and network integration features.

This acquisition is yet another in a long list of Cisco buyouts in recent years. Last year alone, Cisco purchased 12 companies. In 2003, Cisco made a big splash in the wireless networking market by purchasing retail-focused vendor Linksys for $500 million.

In a press release, Luca Cafiero, senior vice president of Cisco's data center, switching and wireless technology group, said: "As part of our global systems approach to networking, we continually look for complementary technology that offers new value to our customers."

As to the future of Airespace's products, technology and workforce, Disabato said it's likely that Cisco will make few changes early on.

"If Cisco is smart, they'll leave it all alone, the way they're doing with Linksys. It will become 'Airespace, a Cisco company.' If not, then the technology will become part of Cisco's WLAN line and may not be as advanced in coming years as it has been."

Startups that remain in the WLAN switch market include Aruba Wireless Networks Inc., Trapeze Networks Inc. and Meru Networks Inc. Siemens purchased Chantry Networks Inc. last month. Other WLAN switch vendors, such as AirFlow Networks Inc. and Legra Systems Inc. have either been acquired or are no longer competing in the market.

Disabato said now that the long-predicted consolidation is under way, it will likely lead to further buyouts and partnerships. He said Nortel Networks, which resold product made by Airespace, is now likely to scoop up a WLAN switch startup for itself.

For more information

Read our exclusive: Siemens to acquire Chantry Networks.

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Bob Olson, PR director for Colubris Networks Inc., a competing WLAN switch vendor, said the acquisition creates more opportunities for the other WLAN switch startups. He said that with Cisco taking over Airespace, its partnerships with Nortel and Alcatel will likely end.

"Nortel and Alcatel are arch enemies of Cisco," Olson said. "So partnerships with Nortel, Alcatel, etc. are available again because [Cisco] won't continue selling Airespace."

Cisco stressed that it will continue to support both its Structured Wireless-Aware Network framework product line as well as Airespace's products.

Cisco is hoping the acquisition jump-starts its product development and gives the company an edge as it grows its wireless business. But Disabato argued that the acquisition will sacrifice product quality.

"If I were an Airespace customer, I'd be worried about Cisco's plans for the entire product line," Disabato said. "As a Cisco customer, it becomes just one more choice. Of course, if I've just bought a bunch of Cisco APs and a Wireless LAN Solutions Engine, I'd be a little upset, since the Airespace solution is superior."

It also remains to be seen how the cultures of the two companies will be integrated. Cisco said Airespace is a strong technological and cultural fit with its team. Others, such as Disabato, beg to differ.

"Airespace has always aimed at being best of breed," Disabato said. "Cisco is content being middle-of-the-road because they own most of the road."

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