Cisco to buy semiconductor company Luxtera for $660M

Cisco is paying $660 million for photonics chip maker Luxtera. (Cisco)

With a never-ending quest to improve data transmission speeds over longer distances to keep up with increasing bandwidth demands, service providers and network equipment companies are constantly on the lookout for faster, better chips.

Cisco is looking to meet those demands with Tuesday's announcement that it's buying privately held Luxtera for $660 million in cash and assumed equity. The deal is slated to close in the third quarter of Cisco's fiscal year 2019.

Carlsbad, California-based Luxtera uses silicon photonics to build integrated optics capabilities for webscale and enterprise data centers, service providers and other business verticals.

Luxtera's chip design and manufacturing can lower chip cost and improve chip scale and performance, according to Cisco. Once the deal closes, Cisco plans to use Luxtera's chips across its intent-based networking portfolio that serves service provider, enterprise and data center markets.

The integration of Luxtera and Cisco's optical transceiver portfolio will broaden Cisco's offering of 100GbE and 400GbE optics. As system port capacity transitions from 100GbE to 400GbE and beyond, optics plays a key role in addressing network infrastructure constraints, particularly with density and power requirements.

"With Cisco's 2018 Visual Networking Index projecting that global Internet traffic will increase threefold over the next five years, our customers are facing an exponential demand for Internet bandwidth," said Cisco's David Goeckeler, executive vice president and general manager, Networking and Security Business, in a prepared statement. "Optics is a fundamental technology to enable this future. Coupled with our silicon and optics innovation, Luxtera will allow our customers to build the biggest, fastest and most efficient networks in the world."

Upon completion of the transaction, Luxtera's employees will join Cisco's optics business under Goeckeler.

With Cisco moving from hardware revenues to software and subscription-based revenues, it has fortified its software portfolio by buying AppDynamics for $3.7 billion in 2017 and Jasper Technologies for $1.4 billion in 2016. Last year, Cisco bought SD-WAN vendor Viptela for $610 million. 

On the hardware front, Cisco bought Israel-based Leaba Semiconductor, a fabless semiconductor company, two years ago for $320 million.