Cisco Fortifies Shift From Hardware -- WSJ
October 24 2017 - 3:02AM
Dow Jones News
By Rachael King
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 24, 2017).
Cisco Systems Inc. said Monday it will 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
providing 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," said
Rowan Trollope, senior vice president of Cisco's Applications
Business Group, which includes subscription-based software and
services.
As of Friday's close, BroadSoft's shares had gained 31% for the
year, while Cisco was up 13%. In afternoon trading Monday,
BroadSoft was ahead 1.6% at $54.75, with Cisco rising 0.9% to
$34.54.
Cisco is paying $55 in cash for each of BroadSoft's 31.5 million
shares outstanding. The deal, which had been rumored since late
August, is expected to close in the first quarter of 2018.
BroadSoft, based in Gaithersburg, Md., makes a software product
that combines video, voice, messaging, screen sharing, file sharing
and conferencing in an application accessed online. It also makes
communications 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 revenue declined 4% in the most recent quarter
compared with a year earlier, revenue related to recurring software
and subscriptions rose by half, good for 31% of the company's total
take.
Cisco also is creating 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 deliver
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, a maker of software that helps companies monitor the
performance of their applications in the cloud.
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 24, 2017 02:47 ET (06:47 GMT)
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