Cisco’s Acquisition of Acacia in Jeopardy

S. Schuchart

Summary Bullets:

  • Optical technologies are vitally important for networking; copper has reached its physical limitations.
  • If the deal cannot be consummated, it will be a huge blow to Cisco’s optical technology ambitions.

In July 2019, Cisco announced its intent to acquire high-speed optical interconnect supplier Acacia for approximately USD 2.6 billion. (GlobalData subscribers can read Emir Halilovic’s take and my take on the proposed acquisition in 2019). On Friday, January 8, 2021, Acacia announced it was terminating the agreement, claiming that Cisco had failed to obtain the necessary approval from the Chinese government. In response, Cisco has filed suit against Acacia in Delaware to block the termination of the agreement, claiming it has met all the conditions required to close the deal.

The claims of both companies will be decided in court, and we take no position and make no comment on the legal issues. But, let us examine what it means if the deal does not go through. Acacia was a prime acquisition on Cisco’s longer-term technology roadmap, giving it assets and intellectual property that are important to its future. It’s clear that, from a physics standpoint, the copper era of networking is coming to an end. New speeds and capabilities need to come in the future from optical technologies. Advances in manufacturing, especially in pluggable optical modules like the ones that Acacia makes, are important now and will only get more important as time goes by. Additionally, Acacia is currently one of Cisco’s suppliers as well as a supplier for Cisco’s rivals in the market. The acquisition of Acacia would have insulated Cisco from a competitor buying Acacia as well as possible supply disruption due to geopolitical tensions.

More importantly, the Acacia acquisition was part of a larger optical strategy. Combined with Cisco’s previous acquisition of silicon photonics company Luxtera in 2019 and its own in-house optical engineering expertise, Cisco was assembling a formidable team to address the optical market overall. These acquisitions would have benefited all of the networking parts of Cisco’s business, in the enterprise, data center, and its telecom/SP business. A strong technical leadership position in optical gives Cisco more influence in overall market direction and gives it new markets to explore with advanced optical products.

Given the direction of the market, synergies, and Cisco’s own R&D needs, it would be a big loss for Cisco if the vendor does not prevail in its upcoming legal battle to complete the acquisition of Acacia. For now, we can only watch and wait.

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