Tech giant Cisco Systems Inc. is dropping its consumer businesses to focus on corporate customers, and that’s lucky for Playa Vista electronics maker Belkin International Inc.
Last week Belkin agreed to acquire Cisco’s home router unit Linksys to ramp up its networking offerings and take advantage of the well-known brand name.
The acquisition, which Belkin announced Jan. 24, will bolster the company’s home networking product lineup, which includes other routers, web cams and Internet cables. The addition of Linksys will give Belkin about 30 percent of the U.S. retail market for home and small-business networking, the company said. That’s a significant increase from its current share of about 10 percent.
The two companies did not say how much Belkin paid for Linksys, but it was widely expected to sell for much less than the $500 million Cisco paid for it in 2003. The deal is expected to close in March.
Belkin is increasing its presence in the consumer wireless Internet market as demand for greater bandwidth and better web service increases. People want to connect their tablets, phones and computers to the web for communication such as Skyping and entertainment such as streaming movies. That means there’s a growing market for Wi-Fi equipment, said Chet Pipkin, chief executive at Belkin.
“This partnership with Linksys is very much in keeping with the core of Belkin’s strategy,” Pipkin told the Business Journal after the acquisition was announced. “We’re completely focused on smartphones, tablets, laptops and e-books, and we’re doing a great job of serving that space. You can see how key this Wi-Fi engine is to unlocking these experiences we want to have on the Web.”
Belkin, which Pipkin founded in 1983, has 1,200 employees, with 430 at its Playa Vista headquarters. The privately held company moved its home office from Compton in 2010.
The company ranks No. 24 on the Business Journal’s list of largest private companies, with estimated 2011 revenue of $1 billion.
When it was founded, the company’s core business was selling computer network cables. As the market for desktop computers shrinks, Belkin is shifting to other lines, including accessories for laptops and smartphones, such as cases and in-car chargers, as well as expanding its wireless network offerings for consumers and small businesses.
“This business is all about market share,” said Sam Hamadeh, chief executive of PrivCo, a New York firm that follows private companies. He added that the deal might boost Belkin’s revenue by more than one-third.
“They’re going whole hog on these devices, not just the accessories,” he said. “In addition, they can
use the Linksys name. Everyone knows that blue router with the two antennas.”
Belkin does plan to continue selling the products under the Linksys brand because it is easily recognized by consumers, Pipkin said. Linksys will continue to operate out of its headquarters in Irvine. He did not say how many Linksys employees would be brought into Belkin or how much of the management would be kept intact.
“We’ve been longtime admirers of the Linksys brand,” he said. “They’re a great Southern California success story. They’ve done a great job growing the brand.”
Cisco, with its stock trading last week for around $20, down about 40 percent from before the recession, has been moving away from consumer electronics businesses over the last few years and buying more companies to help increase its services to higher-margin corporate clients.
Cisco bought Pure Digital Technologies Inc., the seller of Flip video recorders, in 2009 for $590 million, only to stop making the devices when smartphones made them irrelevant. The Linskys sale is yet another example of Cisco’s pivot.
“There was nothing good for Cisco about the Linksys brand,” said Matt Robison, an analyst who covers Cisco at Wunderlich Securities in San Francisco. He has a buy rating on Cisco’s stock and a target price of $24. “They need to be known for providing solutions for professionals and not competing for low-margin consumer electronics revenue.”
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