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Why Did Cisco Acquire OpenDNS in the Last Quarter?

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Aug. 10 2015, Published 6:21 a.m. ET

Cisco acquired cloud security player OpenDNS 

In the last part of the series, we discussed how Cisco’s (CSCO) fiscal 4Q15 earnings could turn out when the company announces the earnings on August 12. In fiscal 4Q15, Cisco acquired OpenDNS for $635 million. OpenDNS is a cloud security player. It should benefit Cisco in the network security business. Cisco’s security business is already experiencing good growth and OpenDNS should drive the growth more.

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As the above chart shows, Cisco’s security segment’s YoY (year-over-year) revenue growth was more than 20% for fiscal 4Q14 and 1Q15. This growth was driven by its acquisition of Sourcefire in July 2013 for $2.7 billion. Sourcefire’s intrusion detection products have helped Cisco gain business from the US government and enterprises looking to protect their networks.

This revenue growth fell to a nominal 6% in fiscal 2Q15. Fiscal 2Q14 and fiscal 2Q15 both included additional revenue from Sourcefire. However, Cisco’s security business revenue growth rebounded in fiscal 3Q15. During the fiscal 3Q15 earnings conference call, Cisco mentioned that it signed a record number of security contracts with enterprises. Particularly, it mentioned the FirePOWER series of security solutions. It’s showing strong momentum.

Cisco continues to lead the network security market

Cisco has always been a major player in the network security market. According to a report from Synergy Research Group, Cisco’s share of the worldwide network security market was 30% in 3Q14. This was followed by players like Check Point (CHKP), Symantec (SYMC), Huawei, Juniper Networks (JNPR), and Palo Alto Networks (PANW). The report also mentioned that the global network security market reached $9 billion in the last year.

If you’re bullish about Cisco, you could invest in the iShares Dow Jones US Technology ETF (IYW). IYW invests about 4.10% of its holdings in Cisco.

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