Big Switch to Big Photon for Cisco: Switchzilla to splurge $2.6bn on Acacia

Network overlord Cisco has had its own Victor Kiam moment and is set to slurp one of its suppliers, optical interconnect specialist Acacia Communications, for $2.6bn in cash.

Acacia specialises in coherent optics, using modulation of the amplitude and phase of light, as well as polarisation to send more data down a piece of fibre. It designs and manufactures DSP chips, photonic ICs and transceivers, and claims to have made the first 400 Gbps transponder on the market.

"By integrating Acacia technology into Cisco's networking portfolio, we believe we can accelerate the trend toward coherent technology and pluggable solutions while accommodating a larger footprint of customers worldwide," said Raj Shanmugaraj, president and CEO of Acacia.

While the company supplied Cisco, historically (ie, before the US ban) its largest customer was Chinese networking equipment vendor ZTE. Acacia also sold large quantities of gear to ADVA Optical Networking, Nokia and Huawei, among others.

Acacia is headquartered in Maynard, 35km (22 miles) west of Boston. The fabless semiconductor company was established in 2009 by Benny Mikkelsen and Mehrdad Givehchi. Mikkelsen previously co-founded Mintera Corporation, where Givehchi served as lead developer; the outfit was sold to Oclaro (now part of photonics specialist Lumentum) for $32m in 2010.

Acacia went public in 2016, raising $103.5m but it suffered heavy losses last year, after the US Department of Commerce blocked all American companies from selling products to Chinese tech giant ZTE. According to The Motley Fool, Acacia generated 30 per cent of its sales from ZTE in 2016, and the trade ban that year caused the company to temporarily lose more than a third of its value.

To bring Acacia's silicon expertise in-house, Cisco will pay $70 per share in cash. Under the terms of the deal, Acacia employees will join Switchzilla's Optical Systems and Optics business.

"By innovating across software, silicon and optics, Cisco is reinventing every domain of the network with our intent-based architectures," said David Goeckeler, executive veep and GM of Cisco's networking and security business in an understated canned remark.

“The acquisition of Acacia will allow us to build on the strength of our switching, routing and optical networking portfolio to address our customers' most demanding requirements."

The deal is expected to close during the second half of Cisco's FY2020, subject to customary closing conditions and regulatory approval.

In the past three years, Cisco has been shopping around for capabilities it was lacking: in 2016 it acquired container management startup ContainerX and cloud app wrangler CliQr; while in 2017 it slurped up performance monitoring specialist AppDynamics, HCI startup Springpath, SaaS platform Cmpute.io and SD-WAN peddler Viptela ®.