Cisco plucks Procket assets for $89 million

Cisco Systems Inc. this week announced a definitive agreement to acquire the intellectual property, a majority of the engineering team, and select assets from privately held Procket Networks Inc., a maker of routers and routing technology, for $89 million in cash.

Procket has expertise in routing silicon and software development. Cisco says the purchase will add a “rich intellectual property portfolio” and a team of “proven” silicon and software architects to Cisco’s own routing technology and products.

“The addition of Procket’s engineering team to Cisco offers a unique opportunity to accelerate development of silicon and software across Cisco’s next generation routing portfolio,” said Mike Volpi, Cisco senior vice president and general manager of the Routing Technology Group, in a statement. “Procket has some of the world’s foremost designers of sophisticated silicon, software, and network systems with an average of over 15 years of experience in their respective industries. Adding this talent to Cisco’s world-class engineering team will help drive continued innovation in network infrastructure.”

The deal is a curious one, however. Procket was an emerging competitor to Cisco in core routing with the introduction of its PRO/8800 router last year. Procket had garnered about 2 percent of the 10Gbps routing market in the first quarter of 2004, according to Dell’Oro Group.

A Cisco spokesman says Cisco is not acquiring Procket products, customer contracts, liabilities, debts or real estate.

And Cisco just announced its own next-generation core router, the CRS-1, amidst much fanfare three weeks ago. Cisco heralded the CRS-1’s arrival as the beginning of a new era of homegrown routing innovation for the 20-year-old company. The CRS-1 took four years and $500 million for Cisco to develop, and features 40Gbps silicon packet processors (SPP) co-developed with IBM, as well as the modular IOS-XR operating system with a kernel acquired from QNX Software Systems of Ottawa.

Cisco and IBM claimed the SPPs are “the world’s most sophisticated 40G bit/sec application specific integrated circuit” yet Procket’s silicon technology now casts the future of the SPP into doubt. Procket also has a modular operating system for its routers which would appear the limit the lifespan of IOS-XR as well.

A Cisco spokesman says Procket’s expertise in customizable off-the-shelf (COTS) development and engineering will complement both Cisco’s SPP and its own COTS activities. Procket’s technology is expected to refresh a huge chunk of Cisco’s routing portfolio, from the 7200 series devices used at the enterprise and service provider edge, to the 12000 series Internet edge and core routers.

Cisco and Procket competitors are rejoicing over the deal.

“Cisco’s need to go outside (shows) there are fundamental issues with the CRS-1,” says Hudson Gilmer, senior marketing manager at Avici. “There’s something broken within Cisco’s own development facilities. They now have three platforms (IOS, IOS-XR and Procket’s PRO/1) and that’s got to be confusing to customers.”

“Procket ran out of money,” says Mukesh Chatter, president, CEO and founder of Axiowave, a four-year-old core router maker. “Procket was a good box for best-effort (applications), which was 1998 and 1999’s problems. It did not enable carriers to make money. It was Juniper on steroids.”

Upon the closing of the deal, Cisco will own Procket’s entire intellectual property portfolio. The engineers, including Procket Founder and CTO Bill Lynch, a silicon innovator and lead architect for Sun Microsystems Inc.’s UltraSPARC-IV microprocessor, will become part of Cisco’s Routing Technology Group under senior vice presidents Volpi and Prem Jain.

In all, 17 former Cisco engineers that were employed by Procket will be rejoining Cisco, the spokesman said. Procket CEO Roland Acra, who had been a Cisco service provider CTO, will be under contact to Cisco until Procket’s assets are assimilated into the company. He will then move on to other endeavors, the Cisco spokesman says.

This asset purchase is subject to various standard closing conditions and regulatory approvals, and is expected to close in the first quarter of Cisco’s fiscal year 2005.