Cisco announced it is buying Luxtera for $660M.
Luxtera make SFP modules for Ethernet switches including the critical laser components.
- Just before the Christmas break when fewer people are watching.
- Background of US/China trade problems Cisco get control of part of the supply chain
- Silicon photonics is about using existing silicon manufacturing processes to build laser for signalling on fibre optic cables.
- Rumours that more than $2B/year of Cisco’s total profit is due the sales of optics (SFPs). If true, losing that would cause significant share price revaluation.
Why It Matters:
- This appears to be vertical integration of the supply chain. Cisco is possibly the largest buyer of optical modules in the world for resale and may signal a substantial change in business model
- For the last 20 years, Cisco has outsourced as much as possible. Product design, manufacture, software development and testing, accounting, warehousing etc. There are signs that Cisco is bringing more and more of these back in-house.
- Cisco is flush with cash and tax breaks from the US Govt. You can’t buy back all the shares.
- Stronger negotiating position with other manufacturers (Finisar).
Link: Cisco Announces Intent to Acquire Luxtera | The Network – https://newsroom.cisco.com/press-release-content?type=webcontent&articleId=1959037
Link: Cisco to acquire silicon photonics chip maker Luxtera for $660 million | TechCrunch – https://techcrunch.com/2018/12/18/cisco-to-acquire-silicon-photonics-chip-maker-luxtera-for-660-million/