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Cisco Nabs NetSolve

Cisco Systems Inc. (Nasdaq: CSCO) announced this afternoon it will pay $11 a share for NetSolve Inc. (Nasdaq: NTSL), a 290-plus-employee IT infrastructure provider.

Cisco will pay about $128.37 million for the company, which is public and has about 11.67 million outstanding shares. The acquisition of NetSolve is subject to NetSolve shareholder approval and regulatory approval, and is expected to close in the second quarter of Cisco's fiscal year 2005.

NetSolve operates all facets of an enterprise IT network for its customers -- including monitoring, fault diagnosis, fault resolution, and performance management and reporting. The company provides its IT infrastructure management services remotely 24 hours a day, 365 days a year, from its Network Management Center in Austin, Texas.

The company has 35,000 managed sites in 75 countries, giving Cisco a wide base of accounts through which to push its gear.

NetSolve's target customer has traditionally been the middle market enterprise -- companies that have between 100 and 1,000 employees and annual revenues between $25 million and $500 million.

The acquisition also marks Cisco's increasing interest in the services space -- a move that puts it selling against Electronic Data Systems Corp. (EDS) (NYSE: EDS), IBM Corp. (NYSE: IBM), Hewlett-Packard Co. (NYSE: HPQ), McAfee Inc. (NYSE: MFE), and corporate IT departments everywhere. Several NetSolve resellers -- AT&T Corp. (NYSE: T), HP, and IBM, in particular -- also sell IT management services that compete with NetSolve's.

— Phil Harvey, News Editor, Light Reading

Sibylle 12/5/2012 | 1:17:46 AM
re: Cisco Nabs NetSolve I'd start exploring my options.
ed_eds 12/5/2012 | 1:17:45 AM
re: Cisco Nabs NetSolve Cisco is a technology company and has refrained from getting into the service provider space. Now they will be directly competing with the carriers for mananged router services.

If I were a carrier customer of Cisco I would throw them out. Their sales force will ultimately try to steal your business.

Dont even getting me started on the poor Cisco reseller that was trying to build a Professional Services Organization.

This purchase could really bite them in rear with the carrier and channel partners.
dogmeat 12/5/2012 | 1:17:42 AM
re: Cisco Nabs NetSolve Cisco has so much market share that they feel there is little business risk to this. Juniper and Huawei must be high-fiving each other on getting preference in being lead technology selection for managed services at pissed off Carrier's.

The dumb thing is that Wall Street evaluates us on Revenue generated per employee and since a services company (unless they are raping the customer) will generally have much lower per employee contribution and thus reduce Cisco's average across the organization.

Every genius manufacturer who tries to have a service provider division eventually does an MBO of the SP and spins them back out due to not meeting profit objectives or competing against their partners (and helping Juniper and Huawei). Obviously, Cisco has younger Executives who haven't already experienced/seen this in their career.
psmith 12/5/2012 | 1:17:34 AM
re: Cisco Nabs NetSolve
This 'trial' purchase is a dry run for a bigger
services purchase. This will also give them a controlled environment to roll their beta security and storage products.

CSCO has enough cash to indulge into such forays before investors worry
about negative MVA (market value added). Besides it gives Management something to talk about
in the next conference call...remember it had
to clarify the comments from the previous one.

If nothing else, this $100 million will give them
a deeper and advance understanding of IT enterprise requirements. Thus far they have been hearing it from their source (once removed) i.e Service providers.

I agree about the flipping part, there is always another private equity company to toss a hot potato to..
beowulf888 12/5/2012 | 1:17:33 AM
re: Cisco Nabs NetSolve Sibylle wrote:
> I'd start exploring my options.

Why? Cisco support (TAC) is what gave them their advantage over all their [ex]rivals -- Bay and then Lucent, Cabletron, 3Com, Nortel, etc. Customers like talking to a support engineer who really is an engineer and who really knows the product.

So Cisco probably sees Netsolve as a company that has strong synergies.

I heard that Cisco has started outsourcing TAC, though. I hear that the first-line support people (at least) are pretty lame. Too bad. That's sure to impact their competitiveness in the long run.

--Beo
beowulf888 12/5/2012 | 1:17:32 AM
re: Cisco Nabs NetSolve Dogmeat makes some excellent points. Cisco management has never tolerated divisions that don't make high-margins.

Anyway, it's almost a give that programs which don't make beaucoup margins will probably have a short lifespan at Cisco. Netsolve employees might do well to get their resumes in order sometime during the next year or so. Your new Cisco managers will have little tolerance for margins less than 50 or 60 percent ;-).

--Beo

dogmeat wrote:
Cisco has so much market share that they feel there is little business risk to this. Juniper and Huawei must be high-fiving each other on getting preference in being lead technology selection for managed services at pissed off Carrier's.

The dumb thing is that Wall Street evaluates us on Revenue generated per employee and since a services company (unless they are raping the customer) will generally have much lower per employee contribution and thus reduce Cisco's average across the organization.

Every genius manufacturer who tries to have a service provider division eventually does an MBO of the SP and spins them back out due to not meeting profit objectives or competing against their partners (and helping Juniper and Huawei). Obviously, Cisco has younger Executives who haven't already experienced/seen this in their career.
mainline 12/5/2012 | 1:17:28 AM
re: Cisco Nabs NetSolve Amazing how the Cisco discounters just come out like flies....

Presently Lucent, Nortel and Fuji sell their own managed services to their customer base and service provider partners. The service providers are shorting their stafss and looking to outsource even more.

Why can't Cisco partake in this?
This isn't a move to steal business from partners and service providers but to add value and enable them outsource to be competitive.

What I'd like to know is how Juniper and Huwaii enable their customer partners to manage their gear? Who knows?

mr zippy 12/5/2012 | 1:17:21 AM
re: Cisco Nabs NetSolve I heard that Cisco has started outsourcing TAC, though.

That is true, it was happening at least four years ago here in Australia.
beowulf888 12/5/2012 | 1:17:20 AM
re: Cisco Nabs NetSolve mainline:
I tend to agree with you. There's a lot of active anti-Cisco people on the LightReading lists. I however am not one of them (I'm not sure if that "Cisco discounter" remark was addressed to my previous posts). Anyway, just because I'm a Cisco supporter, doesn't mean I can't step back an point out their weaknesses now and then.

Although I tend to agree with your sentiments, I'd have to disagree with your last post. You wrote...

"Presently Lucent, Nortel and Fuji sell their own managed services to their customer base and service provider partners... <snip> Why can't Cisco partake in this?"

They can certainly try. But when I worked at the big C they killed off a fairly viable in-house professional services operation because it couldn't make better than the 20 percent margins that the rest of the consulting industry was making. Actually 20 percent was better than most of the industry, but Cisco management decided to outsource most of its professional services because it could never make the 60 percent margins that they were then making on hardware.

The argument has been made (many times) that, if one gets a foot in the door through managed services (or through professional services), that one will be able to move more hardware. But Cisco management discovered that measuring this sort of synergistic selling is difficult to quantify. I for one think it DOES contribute to the bottome line, but I don't work for Cisco anymore.

Corporate politics also get in the way. The Sales people at Cisco, bless their aggressive little hearts, hated dealing with any organization that could claim it "helped" in "their" sale. And they really HATED Cisco organizations who would say things to the customer like: "well you don't really need Cisco product X, when Cisco product Y would be more appropriate for your needs" -- especially when the sales people were incented to move product X.

So what I'm trying to say is, that unless Cisco's management has undergone some sort of corporate amnesia, they almost certainly aren't interested in Netsolve for it's margins (because those sorts of companies don't have high margins). I just think we'll have to wait to see what they're really planning for Netsolve.

cheers,
--Beo</snip>
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