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

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.

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