Cisco Expands Cyber-Security Capabilities With ThreatGRID Buy

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In a bid to enhance its cyber-security capabilities, Cisco (NASDAQ:CSCO) last week announced its intent to acquire New York-based security firm ThreatGRID for an undisclosed sum. The deal is expected to close by the end of this year. [1] ThreatGRID offers an intelligent threat analysis technology to protect against different forms of malware outbreaks and cyber attacks. The acquisition is likely to enhance Cisco’s Advanced Malware Protection (AMP) portfolio of security solutions and help it improve its network security services, both on-premise and in the cloud. Cisco’s AMP products and solutions were originally developed by Sourcefire, which the networking giant acquired in a $2.7 billion deal in 2013. [2]

Cisco also recently upgraded its AMP and data center security offerings to help customers combat the most advanced malware threats and other advanced persistent threats (APTs). The upgraded AMP now includes new features in security for endpoints, private cloud appliances, networks and network appliances. [3] These efforts are likely to help the company effectively compete with rivals such as Palo Alto Networks, Check Point  and Juniper (NYSE:JNPR) in the cyber security space, where it has lost share in recent years. The acquisition can also be construed as an effort by Cisco to focus on software and services and support its vision of becoming the number one IT company in the world.

We have a price estimate of $26.50 price estimate for Cisco, which is about 10% ahead of the current market price.

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Product Bundling To Be Key For Cisco’s Future

Security is an important component of all networking products and services, and as Cisco transitions from a hardware manufacturer into a software solutions company, it is changing the way it provides security. The company is trying to build an architecture in every business division where hardware, software and service collaborate to make it convenient for the customer. This architecture will essentially integrate Cisco’s Internet Of Everything concept with the cloud, data centers, mobility as well as security. This will absolve the customer of all responsibility to integrate various systems and enable better and secure delivery of services.

All in all, the company is looking at a business model where an architecture will integrate all products and services, and software licensing will be the main revenue driver. However, this will allow customers licensing Cisco’s software to use cheaper, white-label products, commoditizing hardware and impacting Cisco’s product margins. Also, customers using white-label products might opt for software providers other than Cisco. Therefore, losing customers remains a threat for Cisco in its plans to dissociate software from hardware. If Cisco can develop an architecture with efficient integration, product bundling and security, it should be able to incentivize existing clients to stick with the company and also compete with white label products. Its recent strategy to bundle individual products into tiers of suites is a case in point.

Instead of selling a number of individual products, Cisco plans to bundle them into four different tiers of suites and market them as Cisco ONE Essentials, Cisco ONE Foundational Elements, Cisco ONE Advanced Application Services and Cisco ONE Advanced Security Services. Although aligned under the same Cisco Open Networking Environment (ONE) developer platform for SDN, each of the packages serves distinct purposes and can be licensed out on a suite-by-suite basis. Cisco said that it will still continue to sell products on an individual basis to customers who prefer it, but the products themselves will assume less importance over time as it promotes bundled licenses instead. The new strategy will be initially targeted at the three enterprise domains of data center, enterprise WAN and access networks, but Cisco plans to eventually transition to a similar licensing model for service providers as well.

Included in each of these bundles and central to the revamped branding strategy is the Application Policy Infrastructure Controller (APIC), Cisco’s new software-based controller, which was unveiled last year as a key component of its Application Centric Infrastructure (ACI) SDN offering acquired from Insieme Networks. Apart from simplifying pricing and branding, the new marketing approach should help Cisco better promote its SDN platform. With SDN threatening to pressure hardware margins, Cisco’s new licensing model should also help drive a shift in revenue mix towards higher-margin service/software solutions and protect overall margins.

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Notes:
  1. Cisco Announces Intent to Acquire ThreatGRID, Cisco, May 21 2014 []
  2. Cisco completes acquisition of cybersecurity firm Sourcefire, Zdnet, Oct 8 2013  []
  3. Press Release, Cisco, May 21 2014 []