Feature Story

August 20, 2002

Today Cisco announced that it is acquiring Andiamo Systems Inc. of San Jose. In addition, Cisco announced the Cisco MDS 9000 Family of Multilayer Intelligent Storage Switches. News@Cisco sat down with Dan Scheinman, Senior Vice President of Corporate Development at Cisco, to ask him about the Andiamo acquisition and Cisco's storage networking strategy.

How does the acquisition of Andiamo Systems relate to Cisco's overall technology strategy?
Dan Scheinman: The Storage Area Networking (SAN) market represents a new growth opportunity for Cisco. The market for the large, high growth Fibre Channel SAN switching market is forecasted to grow from $1.2 billion in 2002 to $4.3 billion in 2006 (Gartner Group, June 2002). Cisco remains focused on its core market segments including switching and routing, and is focused on key new growth areas including IP Telephony, security, mobility and storage.

Why did Cisco choose Andiamo?
Dan Scheinman: Cisco and Andiamo share a similar vision of delivering innovative, market leading storage networking solutions that meet customers' evolving business needs. Since its formation, Andiamo has focused on delivering storage solutions that complement Cisco's existing businesses and that extend Cisco's capabilities into the Fibre Channel SAN switching market. Andiamo has utilized Cisco technology and IP networking concepts to introduce the same innovations to the storage networking market as Cisco has delivered in the LAN and IP networking areas.

How will the acquisition of Andiamo complement Cisco's existing storage networking products?
Dan Scheinman: The acquisition of Andiamo represents Cisco's entry into the high-growth Storage Area Networking market. Andiamo's products represent the next generation of storage networking and provide the industry's first multilayer intelligent storage solution. In addition to its products, Andiamo provides Cisco with a strong, experienced team of software and hardware engineers that complement Cisco's internal expertise in Storage and IP Networking. The Andiamo acquisition is also complementary to Cisco's IP storage networking portfolio. Andiamo's products are designed for high-end storage applications within large data center environments, while Cisco's IP storage products are targeted at midrange storage applications for enterprise departments/workgroups and small/medium businesses. Andiamo's multi-protocol support (Fibre Channel, iSCSI, FCIP) provides easy integration with Cisco's IP storage networking products

How will the valuation of Cisco's acquisition of Andiamo be determined?
Dan Scheinman: The purchase price to be paid by Cisco for the remaining equity interest in Andiamo at closing will be based on the following factors: (A) sales of Andiamo products by Cisco during a three-month period shortly preceding the closing, and (B) a multiple based on Cisco's sales and market capitalization. Cisco has a convertible note in Andiamo that is expected to represent approximately 44 percent of the equity of Andiamo at the closing of the acquisition. The purchase price could range from a net purchase price of $0 to approximately $2.5 billion, and will not be determined until shortly prior to closing. Cisco expects to close this acquisition in its third quarter of fiscal year 2004 (February 2004 - April 2004) but no later than July 2004.

Under its agreements with Andiamo, Cisco is the exclusive manufacturer and distributor of all Andiamo products.

How was the Andiamo transaction structured from an accounting perspective?
Dan Scheinman: The Andiamo transaction was structured in accordance with Generally Accepted Accounting Principles (GAAP). As reported in Cisco's most recent Form 10-Q for the quarterly period ending April 27, 2002, Cisco has assumed and expensed 100% of Andiamo's losses, up to the amount Cisco funded, as if it was Cisco's own R&D expense.