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Cisco Systems accelerated its push into new applications and services on Thursday as it announced an agreed $3.2bn all-cash deal to buy video conferencing company WebEx Communications.
The deal is the latest sign of a strategic diversification from the company’s core networking infrastructure business and will put it on a collision course with Microsoft and other big technology companies.
“Increasingly, these giants are starting to clash” as they look for growth outside their core markets, said Roger Kay, an analyst at Endpoint Technology Associates.
As one of the biggest companies in web-based conferencing and secure instant messaging, Cisco said, WebEx would help it develop communications and collaboration services for small and medium-sized businesses and, eventually, large corporations.
“As collaboration in the workplace becomes increasingly important, companies are looking for rich communications tools to help them work more effectively and efficiently,” said Charlie Giancarlo, Cisco’s chief development officer.
That echoed comments earlier this month by Jeff Raikes, head of Microsoft’s business division, about the software company’s own designs on internet telephony and voice-related services. Microsoft followed with an acquisition earlier this week of voice technology company Tellme for a reported $800m, one of its biggest purchases of recent years, and plans to start testing internet voice calling for users of its Office software this month.
While the strategic logic of the WebEx deal was generally welcomed on Wall Street, some analysts questioned the high price that Cisco had agreed to pay. Founded in 1995, WebEx had net income of $49m on revenues of $380m last year. Its shares had already doubled in value since the beginning of last, even before the extra 24 per cent premium represented by Cisco’s offer.
The networking equipment company said it would pay $57 per share in cash. By early afternoon in New York, the shares had jumped 22 per cent to $56.46.
Cisco has been investing heavily in non-core businesses as it attempts to capture more of the value of the information that flows through its switches and routers and into businesses and the home. In October, it launched a new high-end video conferencing system called Telepresence, which is designed to allow companies to hold life-like meetings over a high-speed voice and video network.