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Cisco Scores More Security with a VPN Solution Provider

Virtual Prviate Networks (VPN) are hardly the sexiest of topic conversations compared to, say, wireless networking or the elusiveness of 3G, but their importance shouldn't be taken lightly or dismissed. San Jose, Calif.'s Cisco Systems Inc. demonstrated its commitment to the corporate safeguards Friday when it bought small, privately-held Allegro Systems Inc. of Milpitas, Calif. for $181 million in stock.

Allegro Systems, in which Cisco already owned a minority stake, is a developer of VPN acceleration technologies designed to boost the performance and functionality of existing networking platforms. Cisco believes Allegro Systems will add performance capabilities to meet the ballooning security requirements of organizations connecting multiple offices and employees. Designed for high-bandwidth throughput, Allegro's products allow a large number of concurrent VPN connections required for e-commerce and remote access applications.

One cannot stress enough the importance of security of networks, especially where employees are logging on from different parts of the country. Data theft and exploits have become all too common among corporations large and small. Cisco's reason for the purchase, then, is simple. -- insurance.

"Security, like other high-growth technologies such as voice over IP, high-end routing, wireless, content and storage networking, represents a market opportunity for Cisco," said Richard Palmer, vice president and general manager of the VPN and Security Solutions Business Unit.

For Cisco, whose portfolio of security products includes VPN gateways and concentrators, firewalls, intrusion detection systems and device and policy-based security management systems, the acquisition will enhance the security blueprint for Cisco AVVID - the Architecture for Voice, Video and Integrated Data.

Market research numbers offer testament to the rising star of the VPN sector. Infonetics Research Inc. forecasted that worldwide end-user VPN product and service expenditures will grow 275 percent, from $12.8 billion to $48 billion between 2001 and 2005.

Strategy-wise, it is difficult to say what this will do because the market is so saturated. When Infonetics did its research, it surveyed about 30 companies who were selling VPN software and hardware. While it acknowledged that Cisco is an industry leader because of its broad product range, solid shipments of 7100 VPN routers for site-to-site deployments and strong interest in the Cisco VPN 3000 Concentrator series for remote access deployments, IDC said Nokia is another strong VPN contender. That's right -- the famous Finnish handset manufacturer.

IDC said in a June 2001 Internet Security Appliance report gauging firewall/VPN appliance marketshare based on revenues and shipments that Nokia has been a significant contributor, gaining over 11 percent marketshare over the year 2000.

According to the most recent IDC report, "Nokia led the parade with more than 430% growth in the firewall/VPN security appliance market..." capturing over 22% of the total worldwide firewall/VPN appliance marketshare. Demonstrating consistently strong, competitive position, IDC expects "[Nokia] will remain one of the premier vendors in the security appliance market."

Regardless of who is providing them, the market outlook for VPNs is overwhelmingly strong.

In an IDC study released last week, the market research firm said Internet protocol (IP) virtual private networks (VPNs) have become not only mainstream, but immune to the present economic woes. IDC forecasts revenue generated from IP VPN equipment will more than triple from $2.3 billion in 2000 to $7.5 billion in 2005.

"IP VPNs are attractive for their low cost, ubiquity, and the flexibility they provide in ad hoc connectivity," said Jason Smolek, an analyst with IDC's IP VPNs research program. "Companies that deploy IP VPNs don't need to build private lines between their sites, and for organizations with multiple sites, this represents huge cost savings in terms of capital and time."

Allegro's 39 employees, led by Allegro Systems Chief Executive Officer Mano Murthy, will join the VPN and Security Services Business Unit in Cisco's enterprise line of business. This acquisition will be accounted for as a purchase and is expected to close in the first quarter of Cisco's fiscal year 2002. In connection with the acquisition, Cisco expects a one-time charge for purchased in-process research and development expenses not to exceed $0.01 per share.