What's Next for Cisco?


So what's up with Cisco? The rumor mill is working overdrive this week with speculation that the company is on the verge of an acquisition or series of acquisitions that will shore the company up as the hands-down leading data-communications provider on the planet.

Tongues started wagging as soon as the company sold more than $4 billion worth of bonds on Monday, adding to a cash nest egg already estimated at $30 billion. Why else would a company need all that green except to shell out for a new strategic asset? It's not like Cisco has been shy on the acquisition front lately, either. Remember the cool $7 billion it shelled out for Scientific-Atlanta in 2005? Cisco didn't even break stride for that one.

The question this time is who. Lots of names are being bandied about, but the leading contender seems to be VMware. Acquisition of a virtualization company would dovetail nicely with rumored plans to enter the server market. And it seems that Cisco has been having informal talks with parent company EMC for quite some time. Of course, Cisco also is said to be interested in EMC itself.

It's also interesting to note that this is happening despite hits to the company's bottom line. Second-quarter profits were 27 percent off the period a year ago, with expectations of a similar drop for the third quarter. CEO John Chambers has already announced a belt-tightening program to shave a cool $1 billion off the expense sheet, although there is no word on whether that will include layoffs.

And despite its size, Cisco still has some serious competition out there. Juniper Networks, for one, might not have Cisco's deep pockets, but it does have some friends in very high places. The company recently joined forces with IBM to deliver "hybrid clouds" that would allow enterprises to scale up their private clouds by tying them to servers through the public cloud. It would also offer significant help in shifting application workloads around the globe.

Cisco will no doubt weight its options carefully in preparation for any future acquisition. The move not only has to make good financial sense, but good strategic sense as well.