This is Cisco’s largest acquisition till date as the company plans to amp up its cybersecurity division to boost the company’s revenue.
In a major announcement on Thursday, September 21, America’s digital communications and technology giant Cisco announced the acquisition of cybersecurity firm Splunk for a staggering $28 billion. The $1578 per share cash deal is Cisco’s largest acquisition to date.
Acquisition of Splunk by Cisco
On Thursday, Splunk’s shares surged by a 21% increase in value, whereas Cisco’s shares ended the day with a 4% decline. Splunk’s technology is instrumental in assisting businesses in monitoring and analyzing their data, reducing the risk of cyberattacks, and expediting the resolution of technical problems. Cisco, a long-standing global leader in computer networking equipment, has been enhancing its cybersecurity division to meet customer needs and drive expansion.
Emphasizing the growing importance of AI, Cisco CEO Chuck Robbins said that Splunk’s technology leverages AI to protect networks. In a statement, Robbins said:
“Our combined capabilities will drive the next generation of AI-enabled security and observability. From threat detection and response to threat prediction and prevention, we will help make organizations of all sizes more secure and resilient.”
Cisco’s acquisition deal of Splunk shall close by the third quarter of 2024. The company is confident that this acquisition will help Cisco improve its gross margin in the first year and non-GAAP earnings in year two.
Cisco Bets on Growth
The acquisition cost represents approximately 13% of Cisco’s market capitalization, a substantial figure for a company known for steering clear of major acquisitions. Before Splunk, Cisco’s largest-ever deal was the acquisition of cable set-top box manufacturer Scientific Atlanta in 2006, valued at $6.9 billion. At that time, Cisco’s market capitalization stood just above $100 billion.
However, with the growing dominance of the public cloud in consuming Cisco’s traditional back-end business, the company has sought out new and substantial sources of revenue, with cybersecurity emerging as its primary focus.
Last year in 2022, Cisco changed the name of its core switching and routing business from Infrastructure Platforms to Secure, Agile Networks. The major focus is on the need to boost the security of its networking solutions. Cisco has its own separate reporting unit dubbed End-to-End Security. It specifically consists of security products.
Revenue in the primary business segment surged by 22% during the fiscal year ending on July 29, reaching $29.1 billion. Also, the security unit observed a 4% increase in sales, reaching $3.9 billion.
Cisco has underperformed the Nasdaq this year, with a 12% increase compared to the tech-heavy index’s 27% surge. Over the past five years, the stock has also lagged behind the broader sector, posting a modest 10% gain compared to the Nasdaq’s substantial 66% increase.
Robins expects organizational synergies between Cisco and Splunk to become clear over the next year. “Together, we will become one of the largest software companies globally,” he said in a conference call.