Why Cisco Chose Buy Over Build - Page 2

By Colin C. Haley

March 21, 2003

Besides impediments to builing its own system, Cisco also sees synergies in a Linksys acquisition. The privately held company had tallied $429 million in revenue last year most in North America. Cisco believes it can energize the company's sales overseas.

"Cisco can help with international distribution, sales teams and international retailers," said Dan Scheinman, Cisco's senior vice president of corporate development. "The combination of the two brands will make the (international rollout) quicker and more powerful."

Though praising the use of off-the-shelf silicon and promising not to touch the pricing of the basic Linksys offering, Cisco may incorporate some of its components to enhance the performance of some products, which would raise prices, and presumably margins. A Cisco spokesman declined to elaborate.

While initially surprised that Cisco is courting the consumer market, Zeus Kerravala, an analyst and vice president at the Boston IT research firm Yankee Group, said the decision to buy Linksys rather than build its own system was the right one.

"Linksys has a good consumer brand name and very well-baked products," Kerraval said.

Cisco's purchase of Linksys can easily be adopted into a B-School case study. But whether professors agree with Kerraval and use the deal as an example of a smart pickup or as a cautionary tale remains to be seen.

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