Just When I Thought I Could Ignore the Cisco Merger Rumors...

Now that [Cisco] has bought one of its old-school rivals, skeptics will wonder if it is falling into the takeover trap
Peter Burrows

Throughout much of the year, the rumors kept cropping up: Cisco is buying EMC, or Nortel, or Lucent. And always, the response from insiders was the same: utter nonsense, possibly of the nefarious variety--that some trader was spreading lies to move the stocks. And while Cisco officials rarely commented on rumors, CEO John Chambers' basic message was always the same. Cisco preferred doing deals for companies that are: 1) small technology shops, who could benefit from integration with Cisco's broad product line, and from Cisco's sales and marketing might, 2) focused on IP technologies, rather than weighed down by legacy technologies and 3) based in or near Silicon Valley whenever possible.

Obviously, Scientific Atlanta has none of those characteristics. This morning, Cisco announced it was buying the fifty-year-old, $2 billion company, which makes cable set-top boxes--many of them for plain old analog TVs. Also, it's not clear how much of a lift it will give to Cisco's growth; Scientific Atlanta grew 12% last year--close to Wall Street's expectations for Cisco on its own.

I haven't gotten my mind around the possibilities (and the conference call was way too early for me to listen to, out here on the West Coast). Certainly, I'd imagine the networked DVD technology acquired from KiSS Technology earlier this year will be integrated into Scientific Atlanta's settop boxes. That way, the set-top box would not only bring content into the house, but let you copy it onto a DVD or shoot it over a home network to another TV, PC or mobile player.

Still, my take is that unless Cisco tells an awfully compelling story about why it bucked its normal M&A model, many investors will wonder if Cisco is concerned about its ability to hold up even that much growth. That doesn't jibe with what I've been told by Cisco executives; they seem genuinely excited about the company's ability to remain a hot-growth company for years to come. But now that the company has bought one of its old-school rivals, skeptics will wonder if it is falling into the takeover trap--buying big companies to show one-time increases in sales, that are hard to build upon.

And I will have to start paying more attention to Cisco mega-merger rumors, as they crop up in the future.

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