The fact that Cisco (NASDAQ:CSCO) is to spend $2.7bn to acquire Sourcefire, a company that earned just $5m in after tax profits on $223m in revenue last year is enough to make its shareholders inhale sharply.
(To give a sense of scale, in 2010 Intel bought MacAfee for more than $7bn at a time with the security company was pulling in excess of $2bn in annual revenue; on paper a much better deal.)
For the last few years Cisco has executed a strategy to focus on its core business; it has offloaded areas like video cameras and related services by killing the Flip and UMI service, and this year got out of the load balancer market.
But the core is not sweet. As networking kit becomes increasingly commoditised, Cisco faces challenges from the likes of Huawei (cheaper) and Arista (faster) and a whole host of issues around software defined networking.
However, security is still a healthy sector where technology can differentiate. It is also a great upsell opportunity: Would you like some security with your network?
But for what seems like an age, Cisco’s firewall and security products have been seen as an ‘also ran’ to the likes of Check Point, Fortinet and a whole host of innovative ‘next gen’ upstarts such as Palo Alto and Sourcefire. And while Sourcefire has some good technology, its brand is still 2nd tier – an issue where Cisco’s bulletproof brand and its massive partner community can help.
To be fair, Cisco isn’t alone; over the last few years, IBM has been buying up security start-ups to build out a much strengthened Security Division, while Dell has also grown its security portfolio through the acquisitons of KACE and SonicWall.
If Cisco is in buying mode then MDM might be next on the shopping list, but whether the purchase of Sourcefire will trigger a round of consolidation is debatable.
Either way, Cisco’s channel finally has a branded product that it can actually go out and sell, although ramping up $223m in sales in a security market with a lot of very well-established rivals isn’t going to be easy. In addition, the indigestion caused by eating Sourcefire may be an issue.
Sourcefire by itself does not a portfolio make, and Cisco will probably need to strengthen its credentials if it is to be considered as a serious player in the security space. However, its channel, networking prowess and brand should make rivals take note of the slumbering giant.
