Cisco Makes Meraki Move, Eyes Cloud Dollars

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NEW YORK ( TheStreet) - Cisco(CSCO) opened its wallet again late Sunday, announcing a $1.2 billion deal for privately-held cloud networking specialist Meraki.

The Meraki acquisition comes hot on the heels of Cisco's $125 million purchase of cloud automation and management specialist Cloupia last week.

With the market already packed with its switches and routers, the networking giant is keen to boost its growing cloud services business. During its recent fiscal first quarter , the company's service revenue climbed 12% year-over-year, compared to 2% declines in both its switching and next-generation routing businesses.

Meraki touts technology for Wi-Fi, switching, security and mobile device management, which is managed from the cloud. With a growing number of businesses letting employees hook their own smartphones and tablets up to corporate networks (a phenomenon known as Bring Your Own Device, or BYOD), Cisco sees an opportunity to tap into this trend through the Meraki.

In addition to BYOD, Meraki also supports guest networking, application control, WAN wide area network optimization and application firewall services.

"The deal is consistent with Cisco's strategy to bolster its software and services offerings to drive greater recurring revenues at higher margins," wrote Amitabh Passi, an analyst at UBS, in a note. "We believe Cisco approached Meraki a few weeks ago with the offer looking to bolster its cloud networking portfolio, while Meraki will benefit from Cisco's global reach."

Passi maintained his buy rating and $22 price target on Cisco.

Funded by Sequoia Capital and Google(GOOG) , Meraki was founded in 2006 by Massachusetts Institute of Technology Ph.d candidates. The San Francisco-based firm has racked up more than 10,000 customers, which include Burger King (BKW) , hotel giant Accor and DineEquity's(DINE) Applebees.

"In our view, this deal further enhances Cisco's Unified Access platform with an expanded lineup of cloud-based networking solutions," wrote Brian White, an analyst at Topeka Capital Markets, who has a buy rating and $23 price target on Cisco.

Cisco's Unified Access platform aims to simplify IT operations by helping businesses manage both their physical and wireless networks.

The acquisition, however, was hardly a bolt out of the blue, according to Oppenheimer & Co. analyst Ittai Kidron.

"The deal doesn't surprise us considering Cisco's ongoing effort to build-out WLAN and Unified Access in longer term defense of its Ethernet switching business," he wrote. "As for Meraki, its appeal lies in its software controller which allows network operators to centrally manage and operate networks through the cloud. While valuation appears rich, Meraki could round out Cisco's WLAN (Wireless LAN) portfolio and longer term, potentially complement its SDN (Software-Defined Networking) and cloud strategy."

SDN refers to, a set of techniques for managing network traffic flows through software, which is increasingly touted by the likes of Cisco and its networking rival HP(HPQ) .