Cisco Buys Airespace

Cisco Systems Inc. (Nasdaq: CSCO) has announced plans to acquire wireless LAN switch startup Airespace Inc. for $450 million in stock and assumed options.

Cisco announced the deal Wednesday after the market closed.

Unstrung reported late last week that the networking giant was finalizing a deal for Airespace (see Cisco Buying Airespace?). The startup has been seeing rapid growth in the enterprise wireless LAN space and is ranked as the third largest 802.11 equipment provider after Cisco and Symbol Technologies Inc. (NYSE: SBL) by some analysts (see Synergy: Switches Sizzle ).

Ever since the concept of centrally managing and securing corporate wireless LAN networks was bought front and center by the rash of switch startups that hit the market in 2003, questions have been asked about how Cisco should approach the issue (see Cisco’s LAN Switch: Build or Buy? and Cisco's Switch Ambition).

Cisco had introduced wireless management software for its fat access points and the wireless-enabled Catalyst 6500 switch for larger corporate deployments. It has also made acqusitions and partnerships in the wireless LAN security sector (see Cisco's Path to Switchdom and Is Cisco Seeking Security?).

Acquiring Airespace will help Cisco fill in the gaps in its centralized wireless LAN architecture. Airespace offers switches and applicances for a number of different deployment models -- from the campus to the branch office. "This will get Cisco a low-to-medium-end wireless LAN switch," notes Craig Mathias, analyst at the Farpoint Group.

The deal will also mean that Cisco can -- for the first time -- offer customers so-called "thin" access points, which would be managed by the switches, alongside its traditional Aironet AP product line.

Cisco says that in the "near term" it will continue to offer its own structured wireless aware network (SWAN) architecture alongside the Airespace product. There's no word yet on the long term future for SWAN.

There is also a whiff of déja vu about the acquisition. Back in November 1999, Cisco snapped up Aironet after the access point maker won the contract to unwire the Microsoft Corp. (Nasdaq: MSFT) campuses.

Microsoft is now looking to upgrade its 802.11 deployment and has been looking at using a more centralized architecture at its facilities. Some sources suggest that Airespace is the front runner for this contract.

But Mathias points out that the wireless LANscape is quite different from 1999, when Microsoft -- along with a few others -- pioneered the idea of deploying thousands of APs in the corporate environment. There are now a number of very large deployments out there.

"It's bragging rights," says Mathias, "but it's not worth $450 million. There's got to be a better business reason."

Airespace would join Cisco's Data Center, Switching, and Wireless Technology Group. The deal is expected to close before April 30.

— Dan Jones, Site Editor, Unstrung