Cisco buys Sonet innovator

Cisco Systems plans to acquire Skystone Systems, a privately-held Sonet and synchronous digital hierarchy semiconductor manufacturer in Ottawa, Canada.

The $89.1 million deal is a cash-and-stock combination of 1 million shares of Cisco stock valued at $66.5 million and $22.6 million in cash.

Skystone, founded in 1994, makes chips that integrate several telecom functions in Sonet fiber optic networks for Internet service providers and carriers. Its 40 employees will remain with Cisco and become part of its Service Provider Division. The deal should close by July.

Cisco made seven large acquisitions last year and has made two already this year.

However, industry rumors are swirling around the latest buy, as well as company executives' statements that Cisco plans to partner with more telecom companies in addition to buying them.

Partnering moves would be a shift from Cisco's traditional buying focus, and that could mean several things, according to Rick Malone, an analyst with Vertical Systems Group, Dedham, Mass.

"It means, first, that the people they're dealing with are as big as they are and Cisco really couldn't buy them," he said. "The other thing it may mean is if you look at Cisco's acquisitions, maybe with a few exceptions, they try to focus on new technology in very high growth markets. They try to pick companies that are very innovative.

Partnerships generally have tended to be "weddings of convenience that are dropped almost as soon as they begin," said Vern Mackall, analyst with IDC, New York.

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