Cisco’s Acacia Acquisition Will Strengthen Its All-Important Service Provider Business

‘The service provider business is really important to Cisco. Players like Acacia have the next-gen technology needed to support optics, and Cisco wants that intellectual property,’ says one Cisco solution provider.

Cisco Systems’ planned purchase of Acacia Communications will help service providers build fast and resilient networks and could also help cement the tech giant's leadership in the global market against competitors like Huawei, according to Cisco solution providers.

Cisco revealed its plan Tuesday to buy Acacia Communications, a Cisco supplier of its high-speed, optical interconnect technologies, for $2.6 billion. The deal, according to Cisco, will boost Cisco's software and networking portfolio and help service providers and data center operators meet exponentially growing demand for data.

"The service provider business is really important to Cisco. Players like Acacia have the next-gen technology needed to support optics and Cisco wants that intellectual property," said Faisal Bhutto, executive vice president of networking, cloud and cybersecurity for Computex Technology Solutions, a Cisco Gold partner.

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The deal may also be driven by Cisco's desire for leadership in the service provider world, especially as competitor Huawei continues to compete against Cisco in global markets and as relationships are potentially starting to thaw between U.S. companies and Huawei, Bhutto said.

"If U.S. suppliers are allowed to sell chips to Huawei, Cisco will want first dibs on premium technologies," he said.

Bill Gartner, senior vice president and general manager of Cisco's Optical Systems and Optics Group, called silicon, optics and software "strategic and necessary" in helping to differentiate Cisco's core networking products during a call with media and investors Tuesday.

While the San Jose, Calif.-based company has been investing organically to build a strong portfolio of switches, routers, and intent-based networks, Cisco has also grown out its optics business via acquisitions. The company in 2010 bought privately held CoreOptics, a designer of digital signal processing offerings for high-speed optical networking applications, and in 2012, acquired privately held advanced optical interconnect technology provider Lightwire.

Cisco has been continuously adding to its networking arsenal. The company in February closed on its $660 million deal for semiconductor company Luxtera, whose technology Cisco says is helping it meet business customer demand for faster and high-performing network service.

Growth in the number of video users, social networking and demanding business applications have created the need for infrasturure that is open, programmable and automated, Cisco's Gartner said. Acacia's technology will further enhance Cisco's silicon and optics portfolio while simplifying network operations for service providers, hyper-scale and data center customers, he added.

The deal is aimed at service provider customers, but solutions geared to large cloud and service providers often trickle down to enterprise customers, said Jason Parry, vice president of client solutions for Force 3, a Cisco Gold Partner and one of the tech giant's top federal partners.

Force 3 is building data center and networking infrastructure for some of its federal clients. "Our government customers, we would argue, are all large enterprise customers and are creating networks similar to service providers," Parry said.

Acacia's technology offers higher speeds and lower power consumption for cloud and service providers, and the company's customers include Cisco competitors. Acacia CEO Murugesan Shanmugaraj said during the joint call with Cisco Tuesday that it intended to continue to service both existing and new customers, including these third-party vendors.

"Acacia will continue to sell [products] to third parties and competitors, and we expect them to continue these relationships," Gartner said.