Cisco to Flip for Pure Digital Acquisition

Cisco (NASDAQ:CSCO) is on the acquisition path again, but for the moment the target is not Sun Microsystems (NASDAQ:JAVA).

Instead the networking giant today announced plans to pay £411 million in a stock deal for Pure Digital Technologies, the maker of the Flip Video video camera devices including the Flip MinoHD. And while Flip is considered by many to be a consumer electronics device, D&H Distributing, an IT distributor, last summer called it one of the hottest new devices on the company’s line card.

It’s easy to see why Cisco would go after such a company. Cisco has made its intentions known about plans to enter the growing consumer electronics market with its purchase of Linksys a few years back, and more recently, the integration of that smaller networking company’s channel program into its own channel program.

And while Pure Digital is not necessarily a networking play as Linksys was, Cisco has signaled clear intentions in the video market through its very high-end Telepresence system of high-definition video conferencing. After all, high-definition video uses a lot of bandwidth, and to make it work flawlessly, users need capable networking equipment.

Last fall, Cisco’s CEO John Chambers and the company’s senior vice president of Corporate Development and Consumer Groups both predicted a Telepresence-type system of high-definition video conferencing for the home market in a year or two.

While the Flip Video device is a recording device rather than a live webcam, it brings Cisco closer to the market and technology and price points it will need to penetrate the home high-definition video conferencing market.

Yankee Group senior analyst for media and entertainment devices, Josh Martin, views the move as a foray into consumer telepresence for Cisco.

“Pure Digital may seem to just be a HD camcorder company but it allows Cisco to place improved value on “the network” while providing the company entry into consumer telepresence,” he says.

And in its formal statement announcing the acquisition, Cisco illuminated some of the thinking behind the purchase.

“Pure Digital has revolutionised the way people capture and share video with Flip Video,” Hooper says in a prepared statement issued today by Cisco. “This acquisition will take Cisco’s consumer business to the next level as the company develops new video capabilities and drives the next generation of entertainment and communication experiences.”

Pure Digital has won big in the consumer market – 2 million in unit sales — through its simple design, interface and onboard software, which allows users to quickly share on YouTube and other social networking sites that support video sharing.

When the deal closes, Pure Digital will become part of the Cisco Consumer Business Group which includes Linksys.

Cisco says it will pay approximately $411 million in stock in exchange for all shares of Pure Digital. In addition, Cisco will provide up to £10 million in retention-based equity incentives for continuing employees. The deal is expected to close in Q4 of Cisco’s current fiscal year.