- The Washington Times - Thursday, March 19, 2009

NEW YORK (AP) - Cisco Systems Inc. said Thursday it plans to buy Pure Digital, the company behind the popular Flip Video camcorder, for about $590 million in stock.

The deal is part of Cisco’s aggressive expansion beyond its core business of making computer networking gear. On Monday, the San Jose, Calif.-based company announced that it would start selling servers, to compete for a broader share of the money that big organizations spend on the “data centers” that run their computing operations.

Like several other technology companies, Cisco has a large cash hoard _ $29.5 billion in its last quarterly update _ and is well set to expand during the recession. Chief Executive John Chambers has said a weak economy is an opportunity to invest.

For San Francisco-based Pure Digital Technologies Inc., the acquisition is a big payday. The privately held company sold its first camera less than two years ago, quickly drawing accolades for its ease of use. A signature feature of the Flip Video is that a USB connector flips out of the case, letting the user connect the camera directly to a computer. Editing software contained on the camera then starts up on the computer.

Pure Digital said it has sold more than 2 million cameras. They cost between $130 and $230.

In the 12 months ending in February, Pure Digital sold more video cameras in U.S. stores than any other company except for Sony Corp., said Ross Rubin, analyst at NPD. In February, the mid-range Flip Ultra was the top-selling video camera in the country. NPD’s tallies exclude sales at Wal-Mart Stores Inc.

It’s not immediately apparent how Cisco could take the Flip Video further by integrating it with other Cisco products. The company hasn’t done much to create synergies between the products it already has in homes, like Linksys routers and Scientific-Atlanta cable modems and TV set-top boxes.

NPD’s Rubin believes Cisco will try to build wireless networking into the Flip, but doing that while keeping the camera easy to use will be a challenge, he said.

Lazard Capital analyst Ryan Hutchinson said the acquisition fits into Cisco’s “larger strategic vision” of encouraging more network usage, which allows it to sell more routers and switches. The Flip Video makes it easy to share video on the Internet through sites like YouTube, he noted.

The deal is expected to close in Cisco’s fiscal fourth quarter, which ends in July. Pure Digital’s chairman and CEO, Jonathan Kaplan, will become the head of Cisco’s consumer business group, which mainly sells under the Linksys brand. Home routers are its main products, but it also launched a wireless home audio system this year.

Investors in Pure Digital have included Sequoia Capital, Benchmark Capital, Focus Ventures, Crescendo Ventures, Steamboat Ventures, VantagePoint Venture Partners, Samsung Ventures, AllianceBernstein L.P., Morgan Stanley Principal Investments and Heights Capital Management Inc.

As part of the deal, Cisco says it will also provide up to $15 million in stock incentives for Pure Digital employees who stay with the company.

Cisco shares fell 27 cents, or 1.6 percent, to close at $16.23.

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