Buyouts Are Back in the Networking Market

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Buyouts are back in the networking sector. In separate announcements, two networking giants just unveiled deals to gobble up smaller fry.

Cisco Systems (NAS: CSCO) is back at the buyout buffet. The flow of tiny deals never really stopped, but Cisco sold and shut down more businesses than it bought in 2011. This time, the company is buying privately held optical components maker Lightwire for the princely sum of $271 million. According to S&P Capital IQ, this is Cisco's largest buy since it picked up Starent Networks way back in 2009.

The combination of Lightwire's high-speed transceivers and Cisco's systems expertise is expected to benefit backbone traffic providers and service providers. That's the traditional market for ultra-fast optical systems. Surya Panditi, Cisco's VP of service provider networking operations, explains that the deal will help its target customers "manage the continuing deluge of network traffic alongside tight capital and operating budgets."

That announcement instilled modest buyout hopes in other photonics specialists like Lightwire: Coherent (NAS: COHR) and IPG Photonics (NAS: IPGP) outperformed the markets on Friday.

Elsewhere, F5 Networks (NAS: FFIV) picked up privately held Traffix Systems, an expert in Diameter signaling for 4G networks. Diameter is a successor to the industry-standard RADIUS protocol (note the tongue-in-cheek name), intended to patch up known problems with using the old RADIUS technology in modern, large-scale networks.

This is not, as you might have assumed, a direct play on the wireless signal. Rather, F5 will use Traffix technologies to bolster its handling of 4G traffic as it moves between cell towers, network hubs, and data centers. "F5 has the unique depth and breadth to make the transition from 3G to 4G and IMS much simpler, cost effective, and non-disruptive for carriers," says Traffix CEO Ben Volkow.

This deal is too small to merit disclosure of the financial terms, perhaps a disquieting thought for technology plays on 4G networking. If Diameter pioneer Traffix is too small for disclosure, how will 4G security specialist VirnetX (ASE: VHC) live up to its $1.2 billion market cap? If the license payments don't roll in by the boatload, VirnetX really doesn't have a plan B.

Food for thought, indeed. Smartphones and tablets are unlocking a trillion-dollar revolution in mobile computing, which also feeds the appetite for high-speed networking in a larger sense. Read up on the central thesis of mobile networking and find one company that's uniquely positioned to win as the market explodes. Grab your copy of our free report right now, because it won't be free forever.

At the time this article was published Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Cisco Systems and IPG Photonics. Motley Fool newsletter services have recommended buying shares of IPG Photonics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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