Cisco Systems Inc. today said that it will shell out $660 million to buy Luxtera Inc., a Carlsbad, California-based maker of specialized chips for high-speed optical networks.

The deal’s announcement comes a week after word leaked that the companies were holding acquisition talks. Cisco reportedly beat out offers from Intel Corp. and Broadcom Inc. earlier in the negotiations.

It would certainly stand to reason that multiple buyers had made bids, given how Luxtera holds a prominent position in an increasingly important segment of the networking market. Luxtera is one of the leading makers of so-called silicon photonics chips (pictured). In data centers, they’re used to convert digital information from its default electronic form into light so that it may be transmitted over fiber optic cables. Because photons travel faster than electronics, packets arrive at their destination quicker than what traditional copper wiring allows.

The use of fiber optic gear is increasing as companies seek to manage their growing volumes of digital data more efficiently. That trend, in turn, is driving new demand for Luxtera’s chips.

“More traffic will be created in 2022 than in the 32 years since the internet started, according to Cisco’s recent VNI Forecast,” Rob Salvagno, the networking giant’s vice president of corporate business development, wrote in a blog post. “With this environment as the backdrop, our customers are looking to address the unrelenting demand for more bandwidth driven by an emerging class of distributed cloud, mobility, and IoT applications.”

Today’s acquisition will put Cisco in a strong position to tap this growth. Luxtera claims to be the only supplier of silicon photonics technology with the capacity to produce millions of chips and has the broad market reach to match. The company offers products for enterprises, carriers and the web-scale data centers of major tech firms. 

Luxtera also boasts a technological advantage. In March, it announced that more than 50 of its chip components had set industry performance records.

“As system port capacity increases from 100GbE to 400GbE and beyond, optics play an increasingly important role in addressing network infrastructure constraints, particularly density and power requirements,” Cisco’s Rob Salvagno wrote. “The combination of Cisco’s and Luxtera’s capabilities in 100GbE/400GbE optics, silicon and process technology will enable customers to build future-proof networks optimized for performance, reliability and cost.”

Cisco is paying for the deal in a combination of cash and equity rewards. The company expects to close the transaction by the end of the April.

The Luxtera deal is the latest in a string of recent acquisitions by Cisco. Just last month, the company bought a British firm called Ensoft Ltd. that developed software for carrier networks. Earlier in the year, it picked up network analytics provider July Systems Inc. and inked a deal to acquire access control giant Duo Security Inc. for $2.35 billion.

Photo: Luxtera