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Cisco Aims for EMC

With rivals such as Lucent Technologies nipping at its heels, Cisco Systems Inc. Thursday took aim at EMC Corp., extended its reach into storage area networks by acquiring privately-held NuSpeed Internet Systems for about $450 million in stock.

The Maple Grove, Minn. company is a start-up that has been operating in "stealth mode" since its founding in 1999.

Cisco will exchange common stock for all outstanding shares and options of NuSpeed. The acquisition will be accounted as a purchase, and Cisco expects to complete the transaction by the first quarter of its fiscal year 2001. In connection with the acquisition, Cisco expects to take a one-time charge of up to 3 cents in conjunction with the deal. The acquisition has been approved by the board of directors of each company.

SANs are used by large organizations to centralize data storage rather than employing many separate storage systems all associated with their servers. SANs allow organizations to store and quickly retrieve data on demand, as well as back up their systems.

The market for SANs is a new one for Cisco. The market is dominated by EMC Corp., but Hewlett-Packard, IBM, Dell Computer, Compaq Computer, Sun Microsystems, and Hitachi Data Systems are all strong players. The development of the market has been stymied as these companies have been wrangling over the development of a standard for fibre channel, the technology used to connect the devices on a SAN.

However, SAN is poised for a growth spurt, according to William Hurley, an analyst with The Yankee Group who follows storage networks.

"The world of storage networks is growing and growing very rapidly," Hurley said. "Storage data will demand 2X growth in the next year."

He said SANs are appealing because they unchain storage from a particular server, allowing companies to make discrete business-driven decisions about their computer infrastructures.

Cisco is looking to NuSpeed to provide it with the technology it needs to connect SANs with Internet Protocol (IP) networks, allowing it to offer customers a solution to converge data and storage networks into one infrastructure. The company said NuSpeed's technology will be utilized in solutions to interconnect storage area networks with metropolitan area networks (MANs), wide area networks (WANs) and local area networks (LANs). Cisco said NuSpeed is a leading company in implementing the iSCSI protocol that provides a way for two disparate networks to communicate.

"This is very intriguing," said Hurley. "It looks like this could be a very natural fit for Cisco. It weds nicely with the partnership with Brocade Communications."

Cisco partnered with Brocade Communications in June. Brocade is the largest maker of switches using fibre channel.

"Cisco will gain some sophistication in understanding fibre channel networks," Hurley said of the acquisition of NuSpeed. However, he noted that taking full ownership of NuSpeed could create some minor problems for Cisco. "There's a very steep learning curve," he said. "Doing IP in storage networks is not a mean feat.

Still, Hurley is not too concerned for Cisco. "It won't blow up," he said. "At the end of the day, $450 million for Cisco is not an enormous amount of money. It will give them experience in how to manage the transmission layers of SCSI and fibre channel and wed IP to that. Minimally it will be a learning experience for Cisco. But it could add yet another evolutionary step to storage networks."

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