Both companies already manufacture Wi-Fi products, though Linksys is strong in the domestic market, providing access points and routers; Cisco is strong in corporate WLAN sales. The deal is expected to close in July. Linksys will operate as an independent unit, Cisco officials told analysts.
Along with an extensive 802.11b (AirPort) product portfolio, Linksys is one of the leading edge vendors who have begun shipping 802.11g products - marketed by Apple as AirPort Extreme. Though the standard is currently unratified, analysts and industry insiders expect the final specification to emerge in June or August, when the IEEE standards body meets. Hardware elements of the specification are understood to be more or less complete, though software elements remain to be agreed. Most vendors - including Apple - have prepared for this by ensuring their 802.11g products are software upgradeable.
"Linksys' leading positioning in home networking offers a tremendous top-line growth opportunity for Cisco," said Dan Scheinman, Cisco's senior vice president of corporate development. He added: "We believe Linksys has optimized the business model required for success in this market." Cisco does not anticipate any significant pricing changes on Linksys products.
Cisco initially thought it would internally build a consumer-focused wireless products portfolio, Scheinman said. But as it began developing plans, it decided that only a unit with a low-cost, high-volume operating model could succeed, and that building such a unit would take several years and require an expensive up-front investment.
Buying Linksys, a company with a leading share of the market and an established brand name, will allow Cisco to "jump start" its entry, he said.
Analysts predict the Wi-Fi industry will grow exponentially this year, as the standard is adopted by new markets, such as telecoms and consumer electronic devices.