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Cisco to pay $355 million for Growth Networks Inc.; All-stock deal to add expertise; High technology


SAN JOSE, Calif. -- Cisco Systems Inc., the No. 1 maker of Internet equipment, agreed yesterday to buy closely held Growth Networks Inc. for about $355 million in stock to add semiconductors that accelerate data on computer networks.

Growth Networks makes chips that help information flow through network switches and routers at faster speeds. The company, founded in 1998, is based in Mountain View, Calif.

Its 53 employees will join Cisco's Public IP Carrier Systems Group.

Growth Networks, which Cisco said has had no revenue so far, is a leader in the development of so-called Internet switching fabrics, a new area of networking silicon.

Cisco said it is buying research and development and design expertise, rather than a product, to help it offer faster versions of its most expensive switches and routers to fend off competition from Lucent Technologies Inc., Juniper Networks Inc. and other phone-equipment makers. Internet service providers are buying network equipment that can handle surging online traffic.

"They own the market, and they're trying to stay at the leading edge," William Becklean, managing director of technology research at SunTrust Equitable Securities, said of Cisco's move. "What they're doing is buying research and development."

Cisco's shares fell 82.81 cents to $127.1719 on the Nasdaq stock market.

Chief Executive Officer John Chambers said he expects that Cisco will buy 20 to 25 companies within the year to add new products.

"Cisco wants to make sure they have control of key technologies," said Edward Jones & Co. analyst Dave Powers.

Last year, the company acquired StratumOne Communications Inc., another closely held chip maker. The Growth Networks agreement is expected to close during Cisco's fourth quarter, which ends in July.

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