Cisco's Acacia deal a key component of its core networking strategy

Cisco's $2.6 billion deal to buy coherent optics company Acacia Communications is a key element of the company's long-term plans and strategies.

During Thursday's Citi 2019 Global Technology Conference, Cisco's Marilyn Mora, head of investor relations, provided some additional color on the deal that was announced in July.

"The Acacia announcement is a very important announcement for us as we see three key foundational components to our strategy and architecture and that being silicon, optics and software," More said, according to a Seeking Alpha transcript

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Acacia dovetails nicely with Cisco's previous acquisitions of CoreOptics, Luxtera and Lightwire on the silicon photonics side. On the ASIC side, Cisco bought Leaba in 2016. Acacia rounds out those previous investments by bringing components, modules and digital signal processors (DSPs) for optical subsystems within switches, routers and optical networking gear.

"So this is a part of a focused strategy in terms of completing the roadmap we're looking at," Mora said of the Acacia deal. "The way to think about Acacia as we integrate the silicon, software and optics, is we want to increase that into our core networking platforms.

"We see the market moving from more systems to pluggable over time, and this is not happening next quarter or the next two months. This is going to be a bit of journey over the next two to three years that we see this happening, and we are going to help to drive that transition."

According to Acacia's April annual report, Cisco accounted for 14% of Acacia's revenues last year while ZTE, despite its issues with the Trump administration, was tops at 20% followed by Infinera (17%), which included Coriant after Infinera bought it last year, and Adva (15%).

During its fourth quarter fiscal earnings call, Cisco executives acknowledged that weaker sales in China has a slight impact on the company's revenues. On the earnings call with investors, Cisco CEO Chuck Robbins said Chinese government-controlled enterprises were shutting Cisco out due to the trade war with the U.S.

Mora said that while Cisco doesn't provide long-term guidance, the company was more focused on integrating Acacia into its core routing and switching platforms instead of worrying about the potential loss of Chinese customers.

Mora acknowledged that Cisco gets a lot of questions in regards to how it will manage third-party Acacia customers once the deal closes in the second half of next year.

"We do sell too many of our peers, and we're going to continue to support and sell to those third-party customers," she said. "As I mentioned earlier, we have a longer term play here that's really about the future roadmap."