Why Cisco acquired cybersecurity firm Splunk for $28billion

Cisco is placing a major bet on cybersecurity by acquiring Splunk. The newly disclosed transaction is valued at approximately $28 billion in cash for $157 per share, making it the network equipment giant's largest acquisition to date. Cisco CEO Chuck Robbins said in a statement that the transaction would help "drive the next generation of AI-enabled security."

Splunk's technology assists organisations in monitoring and analysing their data in order to reduce the risk of hacking and handle technical difficulties more quickly. Cisco has long been the world's leading manufacturer of computer networking equipment, and it has been expanding its cybersecurity business in order to meet client demand and fuel growth.

Cisco CEO Chuck Robbins emphasized the importance of artificial intelligence and using the power of AI that comes with Splunk’s technology to protect networks.

"Our combined strengths will power the next generation of AI-enabled security and observability. We will assist organisations of all sizes in becoming more secure and resilient, from threat detection and response through threat prediction and prevention", Robbins said.

The transaction is slated to finish in the third quarter of 2024, with Cisco claiming that it will enhance gross margins in the first year and non-GAAP profitability in the second.

The purchase price is around 13% of Cisco's market worth, a large sum for a corporation that has traditionally eschewed blockbuster deals. Prior to Splunk, Cisco's largest transaction was the $6.9 billion acquisition of cable set-top box manufacturer Scientific Atlanta in 2006. Cisco's market capitalization was just over $100 billion at the time.

However, as the public cloud has eaten away at more of Cisco's conventional back-end business, the company has forced to develop new and large revenue streams. The biggest bet has been on cybersecurity.

Cisco altered the name of its core switching and routing business from Infrastructure Platforms to Secure, Agile Networks in fiscal 2022, concentrating on the requirement for security to be embedded into networking gear. End-to-End Security is a separate reporting unit inside the corporation that focuses solely on security solutions.

Cisco shares have underperformed the Nasdaq this year, advancing 12% vs 27% for the tech-heavy index. It's been a worse investment than the larger sector over the last five years. Over that time, the stock has gained about 10%, behind the Nasdaq's 66% rise.