by Olaf de Senerpont Domis
[Posted on October 23, 2007 - 5:26 PM]
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DiggCisco Systems Inc. has finally put its weight squarely behind WiMax wireless broadband technology, announcing on Tuesday a $330 million agreement to buy privately held Navini Networks Inc.
Dallas-based Navini, founded in 2000, is a leading developer of technologies that improve the performance of WiMax services and that can cut the capital and operational expenditures for service providers by as much as 50%, Cisco said.
"Navini is the industry leader in technology that is critical for spectral efficiency and long ranges, and gives us the technology that fits into our Internet protocol end-to-end strategy," said Suraj Shetty, Cisco's senior director of service provider marketing. "They have a great technology and a good footprint out there, and now the Cisco sales force can take it to a whole new level."
WiMax, which stands for Worldwide Interoperability for Microwave Access, is a wireless broadband technology that can travel over much greater distances than Wi-Fi. Sprint Nextel Corp., the largest owner of WiMax spectrum licenses in the U.S., and Clearwire Corp. are leading the two biggest WiMax efforts in the U.S. Sprint Nextel has said it expects to pour $800 million to $1 billion this year into WiMax and $1.5 billion to $2 billion in 2008.
With Navini, Cisco will become a key supplier of broadband equipment in emerging markets such as India, where there is little communications infrastructure, Shetty said. The goal is to bring broadband to hard-to-reach locales, he added.
"The 'last mile' has become the bottleneck for adoption of broadband," Shetty said.
The deal signals an about-face of sorts for Cisco. Three years ago, Cisco chief development officer Charles Giancarlo famously described the business case for WiMax as "challenging," saying that at best it might provide better technology for wireless hotspots at airports.
Cisco's initial reticence stemmed from uncertainty about WiMax's value back in 2004, Shetty said. "At that point WiMax was still very early, and it was not clear which direction it would end up going," he said. "Everything around 3G was still being debated."
Since then, major wireless companies have been developing nationwide WiMax networks. In another key development, the worldwide standard body, the International Telecommunication Union, adopted WiMax as a global technology standard, a move that will speed adoption of the technology.
The deal marks a decent exit for Navini's many venture capital backers, which poured roughly $200 million into the startup over six rounds. In May, the company raised a Series F financing of $50 million co-led by Austin Ventures of Texas and Arcapita Ventures, the venture capital arm of Arcapita Bank of Atlanta. The round introduced a new investment from Scottwood Capital and also included participation from existing investors Granite Ventures, Investor Growth Capital, Lehman Brothers Venture Partners, Sternhill Partners, Intel Corp.'s Intel Capital and Motorola Ventures, the corporate VC arm of Motorola Inc.
Despite its ample venture funding, Navini struggled to reach profitability. Founded as a maker of proprietary wireless networking systems, over the ensuing years the company revamped several technologies around WiMax.
"The company had a number of incarnations and has a lot of hardware associated with its technology, so it needed a lot of capital," said Cross Atlantic Capital Partners managing director Richard Fox. "Capital-intensive investments are always risky, but we're very pleased that the technology is being validated by Cisco."
In June 2004, Cross Atlantic participated in Navini's $30 million round of Series D financing led by Lehman Brothers' VC arm. Cross Atlantic followed with a Series E round in April 2005. Fox would not detail the amount his firm invested or what kind of return it will earn on the deal.
The deal is expected to close in Cisco's second fiscal 2008 quarter, which ends Jan. 27. Cisco said it plans to integrate Navini into its wireless networking business unit.
