Earlier this week, Cisco Systems announced its intention to purchase optical networking component manufacturer Acacia Communications. The networking hardware corporation has agreed to buy the components firm at $70 per share for a total of $2.6 billion.
Barring regulatory issues, Cisco expects to complete the acquisition within six months.
Preparing for the Future
Cisco is expanding its semiconductor holdings for a few different reasons.
For one thing, the San Jose, California-based corporation wants to bolster the capability of its networking and security division. Indeed, the company confirmed that post-merger, Acacia will be absorbed into its optical systems and optics group. The conglomerate needs additional support in that area due to a global uptick in data transfer rates.
Indeed, Cisco recently predicted global online traffic would reach 13.2 exabytes per day by 2022. That represents a 221 percent increase in worldwide internet usage from 2017. To provide its clients with the bandwidth they require, the hardware maker will need lots of components that convert electromagnetic packets into photonic information. With those components, the corporation can facilitate high-speed data transfer via optical cables.
As it happens, Acacia specializes in making coherent optical interconnectors for cloud infrastructure service providers. Cisco has purchased the firm’s components to support its operations since 2015. With Acacia’s products in its portfolio and the company’s engineers in its workforce, Cisco can better develop products and services for the internet’s next generation.
A Good Investment
Another reason Cisco is buying Acacia is that the chipmaker has enjoyed remarkable success in the face of a sector-wide downturn. In the first three months of the year, the semiconductor market hit a 10-year low. Moreover, because of simmering international tensions and softness in the electronics industry, market analysts predict things won’t get better until next year.
In spite of those conditions, Acacia has done very well lately. In May, the components company reported earnings of $72.9 million in the first quarter of 2019. As a result, the chipmaker beat analyst expectations by increasing its income by 44 percent year-to-year. Indeed, while the public may have lost its interest in buying smartphones, its desire for streaming video content and online gaming has intensified.
Cisco said that it would continue providing service to Acacia’s clients once the buyout is complete. Consequently, the conglomerate has done more than secure its future operations with its new acquisition. The networking company has also bought itself a robust new parallel revenue stream.