Cisco Buying Pure Digital, Some Observers Ask Why?

Cisco Systems Inc.(CSCO) definitely has its eye on the consumer electronics market.

The switch-and-router maker confirmed its latest strategy direction on Thursday said it’s buying Pure Digital, creator of the Flip Video mini camcorder, for $590 million in an all-stock deal. The transaction, said Ned Hooper, senior vice president of Cisco’s corporate development and consumer groups, will further Cisco’s goal of capturing the “consumer market transition to visual networking.”

Hooper said Cisco will develop new video capabilities within its consumer business as it creates more “entertainment and communication experiences.”

But for some, the rationale behind the announcement looks to be more about bandwidth than consumers.

“Cisco adores anything that pumps large volumes of data over the Internet, spiking demand for its routers and switches,” wrote the New York Times. “The company sees video, through things like telepresence and online meetings, as one of the biggest creators of huge Internet traffic. Exactly what Cisco can do to increase interest in these types of products that Sony or Pure Digital can’t do remains to be seen.”

Nonetheless, investment bank UBS maintained its neutral rating on Cisco. On the New York Stock Exchange, Cisco’s stocks were down between 19 and 20 cents in early afternoon trading, at $16.30.

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