Cisco completes $4.5 billion Acacia deal

Updated on March 3, 2021

Cisco has completed the $4.5 billion acquisition of optical networking company Acacia Communications, adding its high-speed data center interconnect products to Cisco's portfolio for service providers and the largest enterprises.

Cisco said this week it will continue to support Acacia customers and sell its products separate from Cisco hardware. Acacia sold a variety of components that plug directly into switches and routers.

Under Cisco, buyers and resellers of Acacia technology should have confidence "that Cisco optics will work in any third-party host," wrote Bill Gartner, general manager of Cisco's optical systems group, in a blog. He added that Cisco "is committed to supporting Acacia's existing customers and new customers."

Acacia products include coherent optics, transceivers and digital signal processing and photonic integrated circuit modules. Acacia technology is critical for moving data between the data centers of communication and cloud service providers.

The finished transaction marked the end of a tumultuous acquisition in which Cisco had to add nearly $2 billion to the original price of $2.6 billion to keep Acacia in the deal. In January, the company said it would pull out of the 2019 agreement because Cisco failed to meet the deadline for regulatory approval.

However, Acacia CEO Raj Shanmugaraj later told Wall Street investors that the company's value had increased since signing the original deal 18 months ago. "I believe we are a stronger company today than we were in 2019," he said during the earnings call.

The Acacia portfolio is a critical piece of Cisco's strategy for increasing sales in the service provider market. For years, service providers moved away from Cisco hardware with the network operating system baked in. Instead, they have turned to open routers and switches to run any one of several network operating systems.

In 2019, Cisco launched network silicon called Silicon One that could power open hardware, not just its proprietary gear. By then, Cisco had started selling its IOS XR service provider operating system separately.

Cisco announced the Acacia deal the same year it completed the acquisition of silicon photonics company Luxtera. Cisco expected that purchase to also bolster its service provider business.

Demand for Acacia products has grown during the Covid-19 pandemic, particularly among cloud providers. Companies forced to have employees work from home have subscribed to more cloud-based services and applications to support them.

Acacia's coherent optical modules have sold exceptionally well during the pandemic to help cloud providers meet the increase in service demand, said Shanmugaraj, who will join Cisco's optics business. The technology converts data-carrying electrical signals from a data center into an optical format that can reach its destination in the outside world over a high-speed cable.

Antone Gonsalves is news director for the Networking Media Group. He has deep and wide experience in tech journalism. Since the mid-1990s, he has worked for UBM's InformationWeek, TechWeb and Computer Reseller News. He has also written for Ziff Davis' PC Week, IDG's CSOonline and IBTMedia's CruxialCIO, and rounded all of that out by covering startups for Bloomberg News. He started his journalism career at United Press International, working as a reporter and editor in California, Texas, Kansas and Florida.