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Cisco to Buy Spans Logic

Craig Matsumoto
3/28/2007

The dreaded Cisco Systems Inc. (Nasdaq: CSCO) purchase of startup Spans Logic Inc. is coming to pass, but analysts are still saying this isn't a death knell to Spans competitor NetLogic Microsystems Inc. (Nasdaq: NETL).

Today, Cisco announced plans to acquire Spans Logic -- hereafter referred to as Spans, because it sounds cool. Terms weren't disclosed, although analyst Tim Kellis of Stanford Financial Group pegs the deal at $6 million.

Cisco did disclose the startup's smallness -- 14 employees -- but not the proper spelling of its name. (See Spans Logic's Spell.)

Light Reading reported in February that Cisco has been eyeing Spans as a means of getting in-house ternary CAMs, a specialty memory-type good for storing large routing tables. (See Sources: Cisco Eyes TCAM Startup.)

Integrated Device Technology Inc. (IDT) (Nasdaq: IDTI) and Renesas Technology Corp. sell CAMs, but all eyes are on NetLogic because it got 61 percent of its revenues from Cisco last year, according to Securities and Exchange Commission (SEC) filings.

Could Cisco, then, be looking to squeeze out NetLogic? Not necessarily.

"We believe Cisco will look to use SpansLogic's technology within its switch ASICs in its lower-end switches," CIBC analyst Allan Mishan wrote in a report issued this morning.

Kellis likens the situation to the PC graphics market. Relatively low-end graphics can be handled by the computer's CPU. "But if it's a high-end application, you need an nVidia or ATI," he says. In the same vein, he expects Cisco -- and others -- to continue buying the high-end CAMs that make up most of NetLogic's revenues. "It's not a threat at all."

Meanwhile, NetLogic has been trying to reduce its dependence on Cisco, which used to represent about 75 percent of NetLogic's revenues. Last year saw Alcatel-Lucent (NYSE: ALU) represent more than 10 percent of NetLogic sales, and, just today, NetLogic announced a three-year deal to sell 12 of its products into four types of AlcaLu boxes. (See AlcaLu Picks NetLogic.)

Possibly due to the company's Cisco addiction, NetLogic shares have been heavily shorted since the company went public in 2004. (See NetLogic Files for IPO.) Last summer, more than 5 million shares of NetLogic were sold short at any given time, according to Nasdaq , and the figure jumped to more than 6 million this month.

Neither Cisco nor Spans returned calls for comment. Venture capitalist Hatch Graham, whose ATA Ventures fund invested in Spans, would say only that the startup "created an architecture that was disruptive" in what was otherwise a market of "incremental" changes.

NetLogic shares were down $1.33 (4.7%) at $27.25 in early afternoon trading today. The stock is well off its 52-week high of $45.03, but it's coming off a good run. NetLogic is still trading higher than it did a week ago and is up 20 percent since Dec. 31.

— Craig Matsumoto, West Coast Editor, Light Reading

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Pete Baldwin
Pete Baldwin
12/5/2012 | 3:11:09 PM
re: Cisco to Buy Spans Logic
Getting more specific about the NetLogic shorts -- the number of short positions dipped down to the 3.7 million range late in '06 and then grew each month in 2007, probably as the Spans Logic story got out. (Numbers based on a Nasdaq tool that takes a snapshot of short positions midway through each month.)
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