Cisco Systems Inc. is paying $2.15 billion to acquire a leading fiber-optic business from Pirelli SpA of Italy, another escalation in the race among network equipment makers to sell faster Internet gear.
Pirelli Optical Systems makes machinery based on a technology called DWDM, or dense wave division multiplexing, to boost the capacity of communications networks for Web, phone and video traffic. DWDM splits a light beam into different wavelengths, each of which can transport a separate load of Internet traffic.
The deal announced today follows a string of other high-priced deals involving companies with fiber-optic expertise, including a $3.25 billion acquisition announced by Canada's Nortel Networks Corp. last week and two other recent purchases by Cisco for a combined $7.4 billion.
Fiber-optic technology has quickly become the focus of the networking industry as a rapid increase in online usage is straining the Internet, mostly at the connection points between all the various types of networks that make up the Web.
The congestion is only expected to increase as more industries adapt to electronic commerce and consumers gain access to high-capacity Internet services via telephone lines, cable TV wires and wireless links.
The early leaders in using fiber-optic technology to unclog the Web's intersections and increase its overall capacity have been Nortel Networks and Lucent Technologies Inc., as well as new players such as Petaluma, Calif.-based Cerent and Richardson, Tex.-based Monterey Networks--the two companies Cisco recently acquired in a bid to extend its industry dominance to this field.
Cisco said part of the purchase price for Pirelli Optical is contingent on the business reaching certain revenue targets and other performance milestones. As part of the deal, Cisco also agreed to invest $100 million in Pirelli's optical components and submarine optical transmission businesses.