UPDATED 19:21 EDT / APRIL 06 2009

The Cisco bid: To branch out while others retrench

By Rachel Metz
AP Technology Writer / April 5, 2009

SAN JOSE, Calif.—On the surface, there doesn’t seem to be much of a connection between the servers that run corporate data centers and a handheld video camera you use to film family vacations. Yet both have somehow become part of the master plan at Cisco Systems Inc.

After growing into one of Silicon Valley’s most prominent companies by selling behind-the-scenes computing products, Cisco is now expanding aggressively, using its hefty financial resources to go on the attack while other companies are just trying to survive.

In recent weeks, Cisco said it will start selling servers, opening a new rivalry with longtime partners like Hewlett-Packard Co. and IBM Corp. Cisco also agreed to pay about $590 million in stock to pick up Pure Digital Technologies, which makes the popular Flip camcorders.

Cisco has not been spared by the recession. Its profit declined 27 percent in its last quarter, which ended in late January, and it reported flat earnings in the previous period. It is slashing more than $1 billion in expenses, partly by cutting back on travel and freezing hiring.

Between 2002 and 2008, Cisco bought 59 companies for more than $13.4 billion. Among the biggest forays, the company acquired Linksys, a maker of home Wi-Fi routers and other networking products, for $480 million in stock in 2003, and Scientific-Atlanta, which makes TV set-top boxes, for $7.1 billion in 2006. It grabbed online conference provider WebEx for $3 billion in 2007.

Cisco is seeking more ways to capture revenue from the data zipping across networks. Rather than just being in the middle, with its routers and switches, now Cisco wants to sell products at more places on the chain.

This accounts for the plan to sell servers, which is part of Cisco’s larger strategy for “Unified Computing” — a combination of networking, data storage and “virtualization” technology that makes servers operate more efficiently.

This thinking also explains the deal for Pure Digital, the maker of the Flip cameras. Cisco wants a piece of the action as people make and share videos on social Web sites — “visual networking” in the words of Cisco’s vice president of consumer marketing, Ken Wirt.

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Copyright © 2009 The Associated Press. All rights reserved.

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