Corporate Strategy Report: Cisco Systems Acquisition of Starent Networks, Essay Example  

Any strategic management decision involves furthering business interests by acquisition of an aligned business to satisfy some set of performance objectives. Such acquisitions are profitable in case a common platform shared by both is there. The common management as a result of the acquisition provides for better performance as compared to independent operation by both. Any industry’s attractiveness test is based upon its market size and projected growth rate, industry profitability, intensity of competition and seasonal/cyclical factors (www.csustan.edu). Starent, which was founded in the year 2000, is a manufacturer of equipment meant for directing digital traffic by collecting streams of information from mobile devices and ensuring its transmission across networks at an extremely economical rate (Bray, 2009). In the present world scenario of broadband connectivity which is spreading all across the globe, demand for transmission of streaming video and music is high, which requires precise and rapid routing in order to avoid garbling of information. The capability in cell phones and other mobile devices to access the internet and carry out many operations which until now were confined to full fledged computers has necessitated the requirements within a cellular network to be fully capable of switching data from one tower to the other without interruption. Starent had focused exactly on this aspect well ahead of the time when the technology actually became available. Its products therefore have a definite edge over competing technologies offered by juggernauts in the industry such as Nokia Siemens (Bray, 2009). Starent has been consistent in its business efforts and started earning profits after the fifth year of its inception until it posted a huge profit in the year 2008, when it posted total revenue of $ 254 million with an unimaginable profit percentage of 428 (Bray, 2009).

Cisco systems, Inc. is one of the giant companies providing networking solutions to the information technology and communications industry. The company has a huge infrastructure for designing, manufacturing and marketing of networking products, solutions as well as services. The five major geographic segments it operates in include the United States and Canada in North America, most European markets, the Asia Pacific region, emerging markets although it generated 55.2% of its total revenues in fiscal 2007 from within the United States and Canada. The company has outsourced the major portion of its products from contract manufacturers and suppliers and this is the major aspect of its business strategy. The company has a reputation of being an aggressive acquirer since its inception and directs its strategies towards incorporating into its fold everything related to service oriented network architecture, wireless broadband as well as web based analytics.

Cisco will pay $ 2.9 billion to acquire Starent Networks Corp. which the company managers have identified as the global leader in the management of the exceptionally high demand for wireless data handling (Bray, 2009). The company will dole out $ 35 per share for Starent to incorporate it within itself as mobile internet technology group. This will mean that the Starent shares will be acquired at a premium of 21% by Cisco. The Cisco management believes that this acquisition will allow it to forge into markets which hold immense potential in the wake of recession (Worthen, 2009). The volume of data traveling over wireless networks is supposed to increase exponentially until the year 2013. Historically 30% of Cisco’s revenue has been generated through its cooperation with telecom giants like Verizon but the company was fast losing business due to certain lacunae which were effectively being exploited by arch rivals such as Alcatel-Lucent of France and Huawei Technologies Company from China (Worthen, 2009). The traditional networking gear which Cisco offered was deficient in wireless technologies which the company is aiming to plug with the acquisition of Starent.

The acquisition has sent the market price of Starent technologies surging towards a high of 34.54 at present with a P/E ratio of 42.6 (investopedia.com). Cisco has paid a high price for the acquisition but the vision behind it is appropriate as the merger portrays a high growth for its newly formed mobile internet technology group.

The acquisition of Starent by Cisco is therefore a smart and timely move by the management which will allow the conglomerate to maintain its leadership in the wireless data transfer section of the fast emerging and growing networks within the American continent as well in its global operations. Cisco already has well established links with the major telecom operators within the US which it will be able to sustain with the acquisition of Starent which in turn will benefit by the financial inputs which will further strengthen its research and development capabilities in the field.

Works Cited

Bray, Hiawatha, Cisco to pay $2.9b for Starent Networks; Deal for cellular data firm highlights growing demand for mobile Internet services, Boston Globe. Boston, Mass.: Oct 14, 2009. pg. B.7

Corporate Strategy, online article available at http://www.csustan.edu/manage/harris/MBA5.htmlwww.csustan.edu, Accessed Dec.5, 2009

Starent Networks Corp (NASDAQ: STAR), Online information available at: http://simulator.investopedia.com/stocks/STAR, Accessed Dec. 5, 2009

Worthen, Ben, Cisco to Buy Starent for $2.9 Billion, Online article available at: http://online.wsj.com/article/SB10001424052748704107204574471010686611246.html Accessed Dec. 5, 2009