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Cisco buys Qeyton
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May 12, 2000: 1:19 p.m. ET
Cisco adds to optical networking holdings with $800 million deal
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NEW YORK (CNNfn) - Aiming to expand its line of optical networking technology, networking giant Cisco Systems said Friday it is acquiring Qeyton Systems, a privately held Swedish company, for $800 million in stock.
The acquisition of Stockholm-based Qeyton is Cisco's fifth purchase of an optical networking company and its second such deal in Europe. Last December, Cisco agreed to acquire the optical systems business of Pirelli SpA of Italy for $2.15 billion. The Pirelli transaction added to optical technology that Cisco had previously acquired start-ups Cerent, Monterey Networks, and Pipelinks.
Optical networking is a communications network that uses optical fiber as its primary medium and photons of light as the means of transmitting digital data. Because optical fiber has much higher transmission capacity and greater reliability than copper wire or coaxial cable, the market for optical networking equipment is expected to explode over the next five years, growing from about $3.1 billion in 1999 to more than $40 billion by 2005, according to Cisco's estimates.
"Optical networking represents a tremendous amount of the industry's growth over the next five years," said Stephen Koffler, an analyst at First Union Securities. "This is an area where Cisco will continue to focus a lot of its internal development effort and make acquisitions."
Cisco expects to take a one-time write-off up to four cents per share related to the acquisition, which has been approved by Cisco's board and a majority of Qeyton's shareholders. The transaction is slated to close in the fourth quarter of Cisco's fiscal year.
Cisco's stock was up 2-1/4 at 62-1/2 in mid-day trading Friday. Cisco's shares now sell for a very lofty 122 times what analysts expect the company to earn in the fiscal year ending in July.
Qeyton makes Metropolitan Dense Wave Division Multiplexing (MDWDM) technology used to boost the capacity of fiber networks carrying phone, Internet and video traffic within individual metropolitan areas. By contrast, Pirelli makes MDWDM equipment used for "long-haul" traffic between cities.
Cisco didn't release any financial information about Qeyton, which was founded in 1998 and has only 52 employees. The company will continue to operate in Stockholm and be led by Claes Rickeby, its current CEO.
Last week, Cisco acquired ArrowPoint Communications (ARPT: Research, Estimates) for $5.6 billion. The Securities and Exchange Commission is scrutinizing that transaction for possible insider trading.
Cisco's stock declined Monday after an article in Barron's magazine questioned the firm's valuation and the high prices it has paid for acquisitions. On Tuesday, Cisco reported third-quarter earnings that beat Wall Street expectations by a penny. 
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