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Cisco munches Inlet for $95m

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With video streaming in its many different forms hogging an increasing chunk of bandwidth out there on the Intertubes, networking giant Cisco Systems wants to be dominant in IP TV – whatever that might be some day. That is why it has ponied up $95m in cash to acquire Inlet Technologies.

Inlet, based in Raleigh, North Carolina, was founded in 2003 and has hardware and software that encodes various forms of video streaming so they use less bandwidth as streams are pumped over IP networks. The company was founded by Neal Page, the company's CEO until he died of leukemia in July 2009.

Inlet's appliances do streaming to mobile and web platforms as well as HD devices using adaptive bit rate (ABR) protocols layered on top of IP. Inlet's Spinnaker tool does HD and H.264 live streaming from Flash media servers, while Fathom is an encoding platform for VC-1, Windows, Media, and Flash files. The company's Armada tool automates the workflow of creating the files to be streamed and Semaphore is its automated quality control product for ensuring the encoding of video media is not fuzzy. (This is usually done manually, or rather visually, and it takes time.) Inlet's software also allows for video content to be streamed and cached over the HD Network from Akamai Technologies, which pumps out Flash, Silverlight, iPad, and iPhone streams.

Inlet raised its Series C round of funding in September 2008, and at that time picked up $10m in venture funding from Core Capital Partners, Technology Venture Partners, Telecommunications Development Fund, and Capitol Broadcasting Company. The first three are venture capitalists while the latter is a TV station operator that has stations in North and South Carolina. The company has raised a total of $20.5m in three rounds of funding. Its products are used by Wimbledon and the French Open tennis tournaments, Major League Baseball's season and playoffs, the PGA golf championship, the Tour de France, NBC's coverage of the Olympics, and a slew of other sporting events. Microsoft, Home Shopping Network, the BBC, MTV and Yahoo! also use Inlet's encoding appliances and software.

Cisco is paying $95m in cash to acquire all of Inlet's stock and to provide retention bonuses to Inlet employees. Cisco will tuck Inlet into its Service Provider Video Technology Group, which is managed by Enrique Rodriguez, and will integrate the Inlet products with its Videoscape TV-over-IP platform. The Videoscape effort was launched on 5 January and seeks to transform the TV experience in much the same way that mobile internet applications have changed the phone. The idea is to make TV products more social, more mobile, and more visually stimulating.

Inlet's products are the visual leg in the Videoscape tool. Other acquisitions as well as existing Cisco hardware and software will no doubt build out the rest of the Videoscape product lineup. Cisco ended its most recent quarter with $3.8 billion in cash and $35.1bn in short-term investments, so Inlet didn't even dent the cash hoard.

This Wednesday, Cisco will report its financial results for its fiscal 2011 second quarter ended in January, after giving Wall Street a bit of a shock back in November when revenues fell short by $500m. In Q1, revenues at Cisco were up 19.2 per cent to $10.75bn, but net income was only up eight per cent, to $1.9bn. Cisco projected only 3 to 5 per cent revenue growth in the January quarter, and Wall Street is waiting to see if the networking giant exceeds these lowered expectations. ®

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