Cisco/Nuova Deal Invests in Next-Gen Datacenters

Cisco Systems announced today it’s made a $50 investment and purchase of startup Nuova Systems, with the option to invest as much as $42 million more.

Headed by former Cisco executive Mario Mazzola, Nuova Systems will become
a Cisco subsidiary, owned 80 percent by Cisco and 20 percent by Nuova Systems

The new subsidiary will continue to operate from its headquarters
in Santa Clara, Calif., not far from Cisco’s home base San Jose.

Cisco isn’t giving out many specifics of what
Nuova is or what it will be working on, other than to say it’s designed to accelerate
its next-generation product development for the data center.

The company did say Nuova’s efforts will complement Cisco’s current data
center portfolio, including its flagship LAN switching platform, the Catalyst
6500, as well as the MDS line of storage switches, SFS server networking
switches and application networking solutions for accelerating applications
within the data center and to the rest of the enterprise.

Formed last summer, secretive Nuova has 76 employees, including Mazzola,
Cisco’s former chief development officer, and three other former Cisco
executives, Prem Jain, Luca Cafiero, and Soni Jiandani. All are expected to return to the Cisco fold, working for the new subsidiary, if the transaction goes through as anticipated.

A unique aspect of the deal is Cisco’s 80 percent ownership stake. Cisco
has an option to purchase the remaining twenty percent. Should it occur, the
transaction would happen in late 2007 or early 2008.

Meanwhile, the deal is laden with incentives for Nuova. To the extent
Cisco is successful in selling Nuova products, the deal calls for a
potential minimum payout of $10 million and a maximum of $578 million to

However, Cisco is not under any obligation to buy the remaining twenty
percent, Cisco spokesman John Noh told

As chief development officer, Mazzola was a key executive at the
company. He first joined Cisco in 1993 when it acquired Crescendo
Communications, the startup he co-founded a few years earlier.

The Crescendo
technology was key to the development of one of Cisco’s most successful
product lines, the Catalyst local-area-network (LAN) switch.

Acquisitions are nothing new to Cisco which has long bought out smaller
firms to fuel its growth strategy. The most recent
was last month’s purchase of Meetinghouse for $43.7 million in cash and

Meetinghouse makes AEGIS SecureConnect, a piece of 802.1X security
software that allows business customers to restrict computer access to
authorized users and host devices trying to tap into corporate networks.

Last year, Cisco’s purchases ran the gamut from its buy of server
virtualization specialist Topspin
for $250 million, to set-top box maker Scientific-Atlanta for a whopping
$6.9 billion.

Cisco’s stock has been on a tear
lately. In a conference call with analysts earlier this week, CEO John
Chambers said “momentum remains strong” at the networking company, with
enterprise growth in the low double-digits.

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