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July 29, 1994

CISCO BUYS NEWPORT SYSTEMS TO REACH SMALL TO MEDIUM BUSINESSES WITH SOFTWARE ROUTING

By CBR Staff Writer

Cisco Systems Inc, Menlo Park has returned to the acquisition trail, this time picking up Newport Systems Solutions Inc, which specialises in software-based routers for the branch office market (CI No 2,456). Last year it bought software developer Crescendo Communications Inc (CI No 2,259). Cisco is to pay around 4.2m new shares for privately-held Newport, valuing the company at $96m. Newport Beach, California-based Newport claims to have an installed base of 20,000 routers, and specialises in the remote access market for small- to medium-sized businesses. Its most recent addition, the LAN2LAN/MPR Remote Office router was launched just a few weeks ago. Cisco sees the acquisition as filling out its product range: it says that adding the software-based routers complements the stand-alone routers and communications servers it already offeres. Specifically, Jeff Paine, Cisco’s corporate marketing manager, cites Newport’s expertise in the iAPX-86-based personal computer system, which he feels represents a valuable addition for the Cisco stable. For the future, Cisco plans to build on Newport’s experience in this area, by incorporating its Internetworking Operating System software functionality into the Newport products. While Paine acknowledges that the functionality of the Newport products differs little from Cisco’s existing 2000 family, he says that a different segment of the market is attracted to the software-only implementation.

Branch offices

This, says Paine, is because there are two different types of company currently buying branch office systems: Cisco has traditionally appealed to large companies wanting to tie branch offices into their corporate networks, but small- to medium-sized companies are increasingly looking to tie in their remote offices as well, and this is where Newport is said to have its strengths since it is these companies that are attracted to software-based offerings that can run on their existing kit. Indeed, says Paine, Newport currently has around a 50% share of this market segment. The move may, however, have implications for Cisco’s point-and-click internetworking strategy announced a few weeks ago – which is specifically pitched at small, first-time users – although Cisco claims that this will not be affected. Paine also cites other advantages with the acquisition, namely the fact that the two companies’ customer bases overlap very little, and that Newport has a strong distribution structure already in place. If the deal passes all the usual remaining hurdles – shareholder approvals, regulatory approval, Newport will remain at its Newport Beach headquarters and keep its name, becoming a wholly-owned subsidiary of Cisco. Its president and chief executive Larry Stephenson will become a vice-president of Cisco, and general manager of Newport. Since Newport is such a lean organisation it has only 55 staff – there should be no resultant job losses, and indeed Cisco says it will be adding a few engineering and marketing staff.

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