Cisco Systems Inc. (Nasdaq: CSCO) announced on Thursday its intention to acquire privately held AYR Networks Inc. (see Cisco Acquires AYR Networks), a maker of open-source routing code.

Cisco already owns 16.6 percent of the company, which makes the deal a so-called "spin-in." It will buy the remaining shares of the company for $113 million in stock.

AYR Networks, based in Palo Alto, Calif. and founded in 2001, has been developing distributed routing software based on open-source code. The company has been focused on developing code for Cisco products. It first targeted the Cisco 7600 routing platform and is rumored to have also tested its software out on the Catalyst 6509.

What's behind the move? Cisco officials say the acquisition will help them integrate new software features into Cisco products. The open-source approach, which allows a community of developers to make changes and improve the software, will fine-tune the software in Cisco equipment, the theory goes.

AYR is the third spin-in deal that Cisco has announced this year. The Navarro Networks and Hammerhead Networks acquisitions closed in June of this year (see Cisco Goes Spin-Crazy and Cisco Acquires Navarro). Cisco chief executive John Chambers has said the company plans to buy eight to 12 small to medium-sized companies this year, mostly private firms in emerging technology areas.

While Cisco’s original stake in the company was relatively small, its influence was not. Cisco didn’t disclose how much the company had raised in funding prior to announcing the acquisition, but sources say that the only outside money invested in the company came from Cisco. Some have estimated that investment to be around $4 million or $5 million. The rest of the money used to start the company came from the founding management team, say sources.

Essentially, AYR engineers ported Linux to the Cisco 7600 central switch processor, route processor, high-speed WAN line cards, and distributed switching LAN line cards. The company then developed routing protocols, a command line interface, ASIC control daemons, line card managers, flash drivers and file systems, network drivers, and several more subsystems.

Cisco confirms that some of AYR’s milestones were related to demonstrated integration and interoperability with Cisco products, but the company would not specify on which platforms the company had tested the software.

Specifically, the AYR software will be integrated into Cisco IOS to help provide hooks for additional features on Cisco routing and switching platforms. Because AYR’s software is based on open-source code, it will make future development of features much easier for Cisco. It will also help Cisco integrate product features from acquired companies into its existing product lines much more quickly, improving its time to market, according to Cisco officials.

The AYR software offers still another benefit to Cisco: It allows for a fully distributed routing architecture that can be used to help increase network performance. This distributed approach could be why Cisco and AYR Networks decided to target the Cisco 7600 first. This router uses one of Cisco’s oldest architectures, a central processor design, which typically is limited in performance. While Cisco has added routing accelerator blades to the system to improve the performance, the product has still lagged behind younger edge-routing platforms from companies like Juniper Networks Inc. (Nasdaq: JNPR).

“The whole idea behind Linux is that it’s flexible,” says David Newman, president of Network Test Inc.. “You can basically write whatever new feature you want. And if it can enhance performance, it could buy the 7600 some more time in the market.”

But Newman also warns of downsides. The biggest issue is interoperability between the embedded software from AYR and Cisco’s existing IOS operating system. While integration is by no means an impossible task, Newman says it isn’t an easy problem to overcome.

While Cisco has made its original intended uses of the technology clear, some analysts, such as David Passmore of the Burton Group, wonder if Cisco might also use the Linux-based software to help rebuild a new version of IOS. Rumors have floated around for the last couple of years that Cisco is scrapping its old IOS and starting development from scratch. Passmore says that the openness of Linux would foster valuable collaboration that could help Cisco get this project off the ground.

When asked about this prospect, a Cisco spokesperson denied it, stating that Cisco has never announced it is replacing IOS. Other industry experts, such as Newman, say the idea of replacing IOS with a Linux version is highly unlikely.

“Rewriting IOS to use Linux would be a massive undertaking. I’m not sure what it would buy Cisco,” he says. "I seriously doubt they would do anything like that.”

Cisco says it expects to take a one-time charge for purchased in-process research and development expenses not to exceed 1 penny a share. The acquisition is expected to close in the first quarter of Cisco's fiscal year 2003.

AYR Networks, which has 30 employees, is led by CEO Tom Grennan, who will join Cisco's Internet technologies division.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com