Cisco pays $450m for wireless start-up

Cisco will buy wireless switch start-up Airespace in a stock deal worth about $450m, the companies said on Wednesday.

The acquisition, subject to regulatory approval and other standard closing conditions, is expected to close by 30 April.

Rumours of the acquisition heated up last week.

Though Cisco already has its own wireless LAN (local area network) products and currently dominates the market with a share that's more than 50 per cent, the Airespace deal makes sense, analysts say, because of a trend away from the distributed architecture style Cisco's technology has favoured.

Frank Dzubeck, chief executive of Communications Network Architects, a consultancy in Washington, D.C., said: "Cisco realises the market is shifting. They needed to change their architecture. They could build it themselves, but their delivery of product into the market from internal development is longer than any other company."

Airespace makes switches and access radios to build wireless local area networks based on Wi-Fi, the 802.11 standard. Businesses use the technology to connect workers to the internet wirelessly rather than through an Ethernet cable. Airespace's products use a centralised approach that uses "smart" switches to control "dumb" radios, rather than enabling each radio as a smart device.

Airespace and other start-ups such as Aruba Wireless Networks and Trapeze Networks claim that by centrally controlling and managing access points, they can expand the network more cost-effectively and provide security such as network authentication.

Cisco had already started to move toward a more centralised wireless architecture. In May, it introduced a new line card for the Catalyst 6500 switch that provided some wireless functionality. But Dzubeck and other critics say it still doesn't offer the same manageability and security as products from Airespace and others.

The deal also continues a trend toward consolidation, which began late last year when Siemens bought another wireless LAN start-up, Chantry Networks.

Cisco will gain some market share with this acquisition. According to the Dell 'Oro Group, Airespace had about seven per cent of wireless LAN sales in the third quarter of 2004. It has sold its gear mostly through partnerships with resellers, including Alcatel, IBM, NEC and Nortel Networks.

Marguerite Reardon writes for CNET News.com.