Cisco to Purchase Linksys Group

Cisco Systems Inc., the world’s largest manufacturer of computer networking equipment, said Thursday that it will buy Linksys Group Inc. of Irvine for about $500 million in stock as part of its bid to expand into the fast-growing home networking market.

San Jose-based Cisco will acquire privately held Linksys to gain its expertise in such areas as wireless technology, transmitting voice over the Internet and storage area networking.

“Fueled by consumer broadband adoption, the home networking space has experienced mass market acceptance,” Cisco Chief Executive John Chambers said. “Linksys has captured a strong position in this growing market.”

Linksys, which has 308 employees, is known for its routers and servers that allow users to hook up computers and printers to wireless networks inside the home. Its products are particularly popular among people with small home offices. After the deal is completed, Linksys would be operated as a division of Cisco and its products would continue to bear the Linksys brand name.

The acquisition is likely to boost Cisco’s overall revenue by $590 million, or 3%, in fiscal 2004, said Gabriel Lowy, an analyst with Credit Lyonnais Securities.

“It’s an attempt to move down-market, to broaden its competitive position against several companies that Cisco will be facing incursions from into the small-office, home-office and consumer market,” Lowy said.

Cisco is facing increasing competition in the low-end and mid-range switching business from Dell Computer Corp. and 3Com Corp.

Cisco shares fell 18 cents to $14.04 on Nasdaq.

Bloomberg News was used in compiling this report.