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Summary:

Why does a company that has nearly $30 billion sitting in its coffers need another $4 billion in debt? When Cisco Systems announced that it was raising $4 billion from the debt market earlier today, it led to speculation that it might be loading up in […]

ciscologoWhy does a company that has nearly $30 billion sitting in its coffers need another $4 billion in debt? When Cisco Systems announced that it was raising $4 billion from the debt market earlier today, it led to speculation that it might be loading up in order to buy a company or two.

The new debt will help Cisco retire a $500 million floating rate note due later this month. The company will have about $6.5 billion in net cash on hand after the offering, though the total funds available would be $33.5 billion. One can’t rule out the fact that Cisco might use the money to institute a share buyback — its stock has been going nowhere, making it less attractive as acquisition currency.

The New York Times has a list of the potential acquisition targets. Cisco is making two moves — one right (data center) and one wrong (consumer) — but in order to get a toehold in either of them would need to make some acquisitions, especially as it faces long, drawn-out battles with the likes of Hewlett-Packard and IBM. Over the weekend, we came up with a list of companies HP should buy in order to put the hurt on Cisco.

Perhaps you can help make a shopping list for Cisco?

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  1. Very smart move. $4B in debt at 5% and 6%.

    Acquiring companies that have strong cash flow and growing 15% would give them a hell of a pay back. If I was Cisco I would continue to build out the SaaS offerings. Cisco has made it very clear that applications is where the company is heading. My two cents.

  2. debt is cheaper than equity. They are probably buy back the stock. Looks like they might also be retiring higher interest debt for lower interest debt. Not a bad thing to do IMO.

    On the other hand, maybe the cash hoard is stuck oveseas and they have trouble repratriating it without paying significant taxes.

  3. Even though the SaaS movement has been growing for a number of years, I still think it’s a vehicle for corporate espionage. If you can afford to keep your sensitive data internally (i.e. sales, marketing, financial, email), you should.

    The hypothetical Sun acquisition is an interesting one — if you combine Star Office with Postpath, Jabber, and WebEx, you have the beginnings of a complete in-house solution. Add in a PBX (like fonality), a CRM, and some form of clustering/cloud/etc. software (like QLayer), voila — an internal, integrated solution. Or it can be hosted.

    I’ve told a few folks at Google that they should take the search appliance platform and put gmail, apps, maps, etc. on it and sell an “internal SaaS” solution. Perhaps Cisco will lead the way instead.

  4. Bingo, Sylvester- most of the cash is overseas and can’t come home easily.

  5. They should lower prices on the lower end equipment. As a reseller I’m seeing significant push back on the high prices Cisco likes to charge. The argument that they really do make better products doesn’t cut it anymore. When you can do the same thing for less and not have the kitchen sink thrown in a lot of companies are opting to pass on the kitchen sink.

    As an example, Cisco has an excellent low end phone system offering. The only problem is that it’s easily twice as expensive as most of the competitors. Customers laugh at you when you offer that! It was actually affordable it would be a slam dunk!

    Data Center might be where it’s at for the 5% of the IT community that cares but the rest of the market is starting to look elsewhere. Om, Data Center is certainly the juicy buzzword these days but the total market for the big orders is probably less than 100 companies in the US alone. Should they really continue to forsake the SMB market who doesn’t care about Data Center, or the Nexxus line or Telepresence???

  6. so sylvester are you the cisco ? i see your site at cisco.com
    that’s cheap lot here in my country in indonesia currency we got around 9-11% for debt >.<

  7. Cisco bought a cloud computing company in Australia, bought postpath and launched a worldwide Developer contest with $100K+ in prize money focusing on applications. They may look at buying an applications company eventually and get into that space to compete against Microsoft and Google.

  8. Cisco’s Data Center Play Paves the Way for More M&A Tuesday, March 24, 2009

    [...] IT Services: If Cisco wants to run with the big boys it would be well advised to pick up a services business. In light of its partnership with Accenture thanks to its new server launch, that company seems like a decent bet, although it’s currently too rich for Cisco’s roughly $7 billion in cash holdings ($4 billion of which is debt.) [...]

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