Network gear maker Cisco Systems said on Tuesday it would buy optical component maker Acacia Communications for US$2.84 billion in cash, as it seeks to garner a bigger chunk of 5G spending by telecom companies.
Globally, mobile networks would need higher-capacity optical interfaces to handle a surge of data when high-speed fifth-generation network comes on line in the next few years.
Morningstar analyst Mark Cash said the acquisition will bolster Cisco's technology for service providers upgrading to 5G and put its optical portfolio ahead of the shift toward using plug and play devices across various communication segments.
According to Cisco's Visual Networking Index, global internet traffic is projected to more than triple to 13.2 exabytes per day in 2022 from 4.1 exabytes per day in 2017.
"Cisco's optical portfolio was mainly for short range data centre connections, and now gains Acacia's skill set in areas such as metro, long-haul, and undersea," Cash said.
Revenue in Cisco's infrastructure platform business, which includes switches and routers, rose 5 percent to US$7.55 billion in its third quarter. That business is expected to get a boost from 5G communication networks, but Cisco executives have said they do not expect an impact until 2020.
Cisco chief executive officer Chuck Robbins, who took the helm in July 2015, has made acquisitions a central part of his efforts to add muscle to the hardware giant's newer growth areas such as the cloud, internet of things and cyber security.
Cisco's US$70 per share offer represents a premium of about 46 percent to Acacia's closing price on Monday.
Shares of Acacia rose about 35 percent to US$64.86, while those of the Dow component were down marginally at US$56.08.
The deal is Cisco's biggest since its US$3.7 billion purchase of business performance monitoring software company AppDynamics in 2017.
Acacia designs and manufactures high-speed, optical components and counts telecom service providers and data centre operators as customers. Cisco is among its top 5 customers.
Excluding Acacia's cash and marketable securities, the deal is valued at US$2.6 billion, Cisco said.
The acquisition is expected to close during the second half of Cisco's full year 2020.
(Reporting by Akanksha Rana and Vibhuti Sharma in Bengaluru; Editing by Maju Samuel and Saumyadeb Chakrabarty)