Taking forward the initiatives to ramp up its networking portfolio, Cisco Systems (Nasdaq: CSCO) Tuesday agreed to acquire Acacia Communication (ACIA), a leading provider of optical interconnect products. The transaction is tentatively scheduled for completion in the second half of fiscal 2020.

The $2.6-billion deal is the latest in a series of acquisitions by the San Jose-based tech giant, which is on a mission to strengthen its networking products and services. The move is part of a drive launched by CEO Chuck Robbins with focus on strengthening the software portfolio and reducing dependence on hardware. It is expected to make the company better equipped to compete effectively in the highly competitive industry while also offering simplified solutions to customers.

Cisco Q3 revenue down 4%

Acacia shareholders are being offered $70 per share, which represents a 46% premium to the last closing price. The combination will particularly benefit customers who have deployed Cisco’s DWDM systems, by gaining access to Acacia’s vast portfolio of embedded modules and DSPs. It will also bring key technical talent with the potential to contribute to Cisco’s efforts to develop new technologies.

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Meanwhile, there is apprehension that Acacia customers who currently compete with Cisco, including tech majors like Nokia, Huawei, and ZTE, might discontinue their patronage after the buyout. While the sanctions imposed on China-based Huawei bodes well for Cisco, a further escalation of the trade dispute might negatively impact the company’s business.

Encouraged by the ever-growing demand for data networking solutions in the corporate world, Cisco recently published above-consensus sales and earnings guidance for the current fiscal quarter.

Related: Cisco Systems Q3 2019 Earnings Call Transcript

Shares of Acacia surged 36% and traded around $65 early Tuesday, reaching the highest level in more than two-and-half years. Cisco shares, which hit a 19-year high last month, traded up 1% in the afternoon. The stock has gained as much as 32% since the beginning of 2019.

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