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Why Cisco Is Acquiring Ensoft

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Efforts to build a diversified company

Cisco Systems (CSCO) is acquiring British networking software company Ensoft in a move to continue its expansion in the software and service space. Ensoft’s specialty is providing software for enterprise networking. Cisco is buying Ensoft as part of its efforts to strengthen its service provider networking group and further drive its push into software and services.

Cisco is undergoing a transition from being a hardware-based company to being a diversified conglomerate that provides hardware, software, and related services. To speed up this transition, Cisco has been buying strategic businesses in the software and service space. In its first quarter of fiscal 2019, which ended in October, Cisco closed its acquisitions of two software and service companies, adding to its previous acquisitions in the space. Now Ensoft is about to join Cisco’s software and service push.

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Cisco adding money-making business

Ensoft generated revenue of $13 million and earned a profit of $3.8 million in its fiscal year that ended on April 30, meaning that Cisco is about to add a business that already makes money.

At Cisco, revenue rose 8.0% YoY (year-over-year) to $13.1 billion in its most recent quarter. Palo Alto Networks (PANW), Arista Networks (ANET), and Extreme Networks (EXTR) grew their revenues 29.3%, 28.7%, and 13.3% YoY, respectively, in their most recent quarters. Revenue fell 6.2% YoY at Juniper Networks (JNPR) in its most recent quarter.

$6.5 billion returned to shareholders

Cisco made a profit of $3.5 billion in its first quarter of fiscal 2019. It returned $6.5 billion to shareholders through a combination of dividends and share repurchases in the quarter.

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