Cisco to Buy BroadSoft for $1.73 Billion -- Update
October 23 2017 - 12:33PM
Dow Jones News
By Rachael King
Cisco Systems Inc. plans to pay $1.73 billion to acquire
BroadSoft Inc., a maker of cloud-based communications software, as
the networking giant steers further away from its legacy hardware
and into sales of software and services.
The deal would help Cisco increase its recurring revenue from
subscription-based services, which Chief Executive Chuck Robbins
has said is core to its growth strategy.
Increasingly, software and services are driving value in
corporate technology, while hardware, such as Cisco's routers and
switches, face pricing pressures due to commoditization.
"BroadSoft has been a visionary in the idea that all
collaboration technologies are going to move to the cloud," Rowan
Trollope, senior vice president of Cisco's Applications Business
Group, which includes subscription-based software and services.
Shares of BroadSoft, 1.4% higher Monday, were up about 31% this
year while Cisco's stock, up 0.9% to $34.54, was about 13% higher
year-to-date.
Cisco is paying $55 in cash for each of BroadSoft's 31.5 million
shares outstanding. The deal is expected to close in the first
quarter of 2018.
BroadSoft, based in Gaithersburg, Md., makes a so-called unified
communications software product that combines video, voice,
messaging, screen sharing, file sharing and conferencing in an
application accessed online. It also makes software for call
centers and team collaboration that workers can access online.
BroadSoft has been growing at about 20% a year over the past few
years, but its subscription business has been growing at about
twice that rate, BroadSoft CEO Michael Tessler said in an
interview. Almost half of BroadSoft's revenue comes from recurring
software and subscriptions.
Although Cisco's overall revenue declined 4% in the most recent
quarter from the year-earlier period, the company increased by 50%
the portion of product-deferred revenue related to recurring
software and subscriptions. These recurring offers constituted 31%
of its total revenue.
Cisco also has begun to create cloud-based subscription services
to help customers manage its own networking hardware. "Our
objective is to continue moving to cloud-managed solutions across
our entire enterprise networking portfolio," Mr. Robbins said on a
call with securities analysts in June.
Over a five-year period, subscription-based services can add 20%
more revenue than simply selling perpetual, or permanent, software,
Mr. Robbins told analysts at the time.
BroadSoft is the seventh company Cisco has acquired this year,
and the second largest after its $3.7 billion deal to buy
AppDynamics.
Cisco plans to pay for the deal with cash held in the U.S..
While the company has more than $70 billion in cash on its balance
sheet, most is held overseas. At the end of the most recent
quarter, the company had about $3 billion in cash in the U.S.
Write to Rachael King at rachael.king@wsj.com
(END) Dow Jones Newswires
October 23, 2017 12:18 ET (16:18 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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