Will Cisco Acquire Akamai

On October 9, 2013, Cisco and Akamai announced a partnership that would incorporate Akamai’s CDN caching technology into the Cisco ISR router line. They billed it as the “ worlds first integrated Application Optimization Solution for Hybrid WANs”. Fast forward to May 2014, and that product is now available with a real world retail customer using the solution. Comparing the two companies, Akamai is doing great in the CDN industry, however, Cisco is facing its biggest challenge ever. Here are some interesting pieces on the state of affairs for Cisco.

Snapshot of Cisco
  • In 3 months ended January 2014, gross margin is down to 53.3% from 60.7%, in the same period last year
  • In 3 months ended January 2014, revenues is down to $11.1B from $13.0B, in the same period last year
  • In 3 months ended January 2014, net income is down to $1.4B from $3.1B, in the same period last year
  • Credit Suisse published a report declaring that the SDN market is now threatening Cisco’s 60%+ gross margin networking business, where an SDN basic data center switch is 70% lower than a comparable Cisco’s Nexus 3064

Cisco understands that SDN is here to stay for the long term. Cisco is hungry for change, and it has $47B in cash on its balance sheet to make great things happen. Akamai President, Rick McConnell is an ex-Cisco alum. In addition, there are other Cisco alums in the ranks of management and engineering at Akamai. This begs the question, is the new partnership a way to test the waters between the two companies before Cisco goes all the way in acquiring Akamai? An acquisition would create a global cloud infrastructure tech giant that would overshadow IBM, and all other competitors. The combination would be very interesting. In terms of how the acquisition would pan out, that’s a discussion for another post. Will Cisco Acquire Akamai