Cisco picks another partner with $156M Ardent deal

Electronic News, June 30, 1997 by Cynthia Bournellis

Ardent designs and distributes access equipment for integrating voice, video and data on public or private frame relay or asynchronous transfer mode (ATM) networks. The deal is intended to complement Cisco's 3800 line of access concentrators, which moves voice, video and data over frame relay or ATM services. The 3800 series combines Cisco's internetwork operating system (IOS) with cell switching technology the company acquired when it bought StrataCom last year.

Previously, Cisco and Sequoia Capital held minority equity stakes in Ardent. Ardent's early affiliation with Cisco resulted in enhancements to the 3800 series. Certain enhancements involved support for priority queuing of voice over the network. Explains Peter Alexander, executive director of marketing in Cisco's Multiservice Access Business unit: "With LAN traffic, it's first come, first serve. Voice introduces variances in delays, even during a word, so even a millisecond delay counts. Typically, voice has to go ahead of data, because data is not so jitter-sensitive. The queuing management in our IOS, as enhanced by Ardent, lets you mix the streams so everyone gets the quality of service they are looking for."

Based on IOS software, Ardent's platforms will provide native support for multiservice traffic and implement voice compression using standard digital signal processor (DSP) technology from Texas Instruments. "Ardent has been able to get a high-performance hardware set based on Motorola's 860 Power Quick Chip and incorporate it with DSPs for this application," said Mr. Alexander.

Products as a result of the acquisition will be customer premises equipment that will merge voice, data and video in a box that will be priced less than $10,000, said Mr. Alexander. Field test trials will start in August.

Better Service

The deal is focused on better serving telecommunications carriers. And Cisco has aggressive plans to capture a big chunk of this new business from telecom carriers and service providers over the next three years. "A big growth area for us will be in the service provider backbone, an area in which we are currently not strong," said Mr. Alexander, adding that Cisco wants to be an end-to-end provider in this market, from the customer premises equipment to the core infrastructure. "We do not yet have that 50 percent to 75 percent market share we currently hold in the enterprise. Our acquisition of StrataCom is a major step in this direction."

According to market research from the Gartner Group, 80 percent of large enterprises will use ATM in the wide area network by the year 2000. By that time, Gartner predicts much of the broadband access will be provisioned by telecom carriers. "Enterprise customers want the carriers provision the boxes that do that," said Mr. Alexander.

Based in San Jose, Calif., Ardent Communications was founded in 1996 by CEO Wu Fu Chen. Mr. Chen has co-founded four other companies since 1986, including Cascade Communications and Arris Networks. Mr. Chen will hold an executive role within Cisco's Multiservice Access business unit. Ardent's 40 employees will also become part of that unit, which is part of Cisco's service provider business. The unit will be led by Alex Mendez, VP and GM.

Stock Exchange

Under the agreement, shares of Cisco common stock will be exchanged for the outstanding shares and options of Ardent. Cisco expects a one-time charge against after-tax earnings of 23 cents per share in the fourth fiscal quarter of 1997. The acquisition is expected to be completed by late July.

In a related announcement, Cisco signed a definitive agreement to acquire Global Internet Software Group, a wholly-owned subsidiary of Global Internet.Com, Inc., for $40.25 million in cash for all outstanding shares of Global Internet Software. Cisco said it will also take an undisclosed minority equity interest in Global Internet.Com. Cisco expects a one-time charge against after-tax earnings of 2-3 cents per share in the fourth fiscal quarter of 1997.

Global Internet Software develops security products for Windows NT. Its Centri Security Manager Window NT firewall is used by the Navy. Firewalls are fast becoming a necessity, as growing numbers of businesses open up their networks to the Internet. Cisco said the Centri product will complement its enterprise-class PIX firewall, because both are designed to meet the turnkey needs of small and medium-sized businesses, who rarely employ security engineers.

The deal is just one in a number of partnerships designed to help Cisco leverage the market for hardware and software products that help customers protect their networks from unauthorized intruders. It is a follow-on to the security initiative Cisco announced earlier this year with Microsoft. "We will establish the linkage between the applications and the network so that users can log on once and have access to what they'll need at one time," said Mr. Alexander.

To Deliver Firewall Suite

Upon completion of the acquisition, Cisco said it will deliver a Windows NT network firewall suite capable of examining users' credentials, Internet Protocol addresses and access inquiries programmed by systems administrators. In addition, Cisco will use Global Internet.Com's consulting services.