Is Cisco changing its strategy?

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On Monday, networking powerhouse Cisco Systems announced it will start building its own computers – in this case blade servers – for the first time. Then on Thursday, it flips around and shells out $590 million (£409 million) for the maker of a tiny consumer video camera.

What's going on at Cisco?

Actually, Cisco has been acquiring its way steadily into consumer electronics for six years now, starting with its 2003 acquisition of home networking supplier Linksys for $500 million. Two years later, Cisco snapped up set-top box maker Scientific Atlanta for a cool $7 billion. Later in 2005, Cisco paid $61 million for a Danish company called Kiss Technologies, developer of video-on-demand boxes.

Cisco executives revealed some of their emerging strategy a few months after that at the 2006 Consumer Electronics Show in Las Vegas, where they unveiled home audio and media hub products intended to generate demand for home networking equipment.

Now with the acquisition of Pure Digital, maker of the wildly popular Flip video camera, Cisco places its hopes for future growth in an arena once considered anathema to it.

“Cisco’s basic business problem is that they want to continue growing and they’ll have to do it beyond their current markets,” said Andy Ingram, vice president of business development for the data center group at Juniper Networks, a much smaller networking vendor. As their bread-and-butter businesses mature, he noted, Cisco must find new ways to maintain the kind of double-digit growth its shareholders have come to expect.

It certainly doesn’t hurt that the company is sitting on roughly $30 billion in cash.

Less than five per cent of the company’s $40 billion in annual sales comes from consumer products currently, but that may well change as Cisco continues to flesh out the details behind its advertising slogan: “Welcome to the Human Network.”

Ned Hooper, head of Cisco’s consumer group and senior vice president of corporate development, said that the Flip video camera is more than just a clever little gadget. It’s a video platform, capable of driving ever-increasing demand for bandwidth and, ultimately, for more Cisco routers.

"The acquisition of Pure Digital is key to Cisco's strategy to expand our momentum in the media-enabled home and to capture the consumer market transition to visual networking," Hooper said in a statement. "This acquisition will take Cisco's consumer business to the next level as the company develops new video capabilities and drives the next generation of entertainment and communication experiences."

By the same token, Cisco’s push into blade servers – part of what the company calls its Unified Computing System strategy – also is designed to keep Cisco’s growth rate up, even as the economy flags.

“In today's economy, IT organisations must increase productivity and cut costs while maintaining the IT excellence that provides their companies with a competitive edge," said John Enck, managing vice president of infrastructure and operations at Gartner.

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