SAN FRANCISCO — Cisco Inc. has agreed to pay $1.2 billion for closely held Meraki Inc., adding technology that helps businesses manage Wi-Fi networks remotely and expanding its lineup of products for mid-sized customers.
Cisco, the world’s largest maker of computer-networking equipment, is using a combination of cash and retention-based incentives to pay for the acquisition, the San Jose, Calif.- based company said in a statement Sunday.
Chief Executive Officer John Chambers is seeking to capitalize on the boom in demand for smartphones and tablets in the workplace by snapping up a company that helps businesses manage security and wireless access points via the Internet. The deal is aimed at broadening the customer base as Cisco cuts costs, shuts underperforming divisions and trims prices to fend off rivals such as Hewlett-Packard Co. and Juniper Networks Inc.
“The valuation reflects that Wi-Fi, as a market, has very compelling growth prospects ahead,” said Erik Suppiger, an analyst at JMP Securities in San Francisco.
San Francisco-based Meraki expects about $100 million in bookings this year, and its employee base has ballooned to 330 from 120, Meraki CEO Sanjit Biswas wrote in a letter to employees discussing the deal.
Cisco is one of the Triangle’s larger employers with more than 5,000 employees and contractors at its Research Triangle Park campus.
Meraki will allow Cisco to expand in software markets that have high profit margins and recurring revenue, Hilton Romanski, vice president of business development for Cisco, said on a conference call today with analysts. He declined to specify how much of Meraki’s revenue is recurring.
“This is a very attractive combination of a high-margin, high-growth software business,” he said.
Entering businesses with recurring revenue is important for Cisco because 80 percent of the company’s sales every quarter now come from new business, Frank Calderoni, Cisco’s chief financial officer, has said.
Cisco has been shifting to focus more on software and services, areas that are more profitable and with more predictable revenue than sales of networking hardware. Cisco intends to acquire companies specializing in those markets and make them a bigger part of Cisco’s business, Chambers said on the company’s latest earnings call, on Nov. 13.
The Meraki acquisition is an acknowledgment of the success that companies such as IBM and Oracle have had by focusing on software and services. It also signals Cisco is changing its traditional approach of selling primarily equipment while letting partners perform many of the surrounding services.