Linksys made a name for itself by selling gear that gets techies pumped: routers, adapters and other networking gear for the home.
Now Irvine-based Linksys is boosting its line of networking gear for consumers who don’t have a geeky pedigree.
Linksys, which was sold for $500 million to San Jose-based Cisco Systems Inc. three years ago, is developing products for people who want to do everything from play movies and music throughout their home to control their air conditioners.
The move is sure to bring the company into competition with big consumer electronics companies, including kingpin Sony Corp.
Last year Cisco paid about $60 million for Kiss Technology AS of Denmark. The company, which makes software and devices for networked DVD players and recorders, among other home entertainment gear, was folded into Linksys.
And earlier this year, Cisco invested in New Jersey’s Zensys Inc., the developer of Z-Wave, a wireless networking technology that lets users remotely control lights, security systems and other household electronics.
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Tsao: Linksys has $1 billion in yearly sales |
The plan is to work Zensys’ home automation offerings into products from Linksys.
Cisco is expected to formalize its home entertainment ambitions with the naming of a new unit this year under the Linksys banner.
At the same time, Linksys is looking to grab a bigger slice of the small-business market with Internet-based phone systems.
“Right now we have a very good strategy to grow from here,” said Victor Tsao, a Cisco senior vice president and cofounder and general manager at Cisco-Linksys LLC.
Cisco doesn’t break out sales at its units. But Linksys did earn kudos from Cisco Chief Executive John Chambers during its recent conference call detailing results for the quarter ended Jan. 28.
Linksys is on track to post annual sales of $1 billion, Chambers said. The unit accounts for about 5% of Cisco’s revenue, with Linksys recording quarterly percentage growth in the low double digits, Cisco said.
That growth is playing out in Orange County.
Linksys had about 275 employees at its two Irvine locations two years ago. Now 475 of its 700 workers are in OC.
Outgrown Space
The growth has left only two cubicles open at its 50,000-square-foot headquarters at University Research Park. The company is looking for more space,likely at the office park,to handle its growth.
Linksys has earned some rare independence under Cisco. In an unusual move for Cisco, the company allowed Linksys to keep its brand name after the acquisition. Linksys also operates under its own profit and loss statement.
The company’s retained more independence than Tsao expected, he said.
And being part of Cisco has its advantages. Cisco’s stable of global offices and operations has made it easier for Linksys to piggyback its products into foreign markets.
About 5% of Linksys’ sales were outside the U.S. a few years ago. Now, it’s more than 75%.
“We really leveraged Cisco’s worldwide presence,” Tsao said.
Now with Cisco’s backing, Linksys is making a harder drive for the consumer market.
At stake is the connected “digital home.”
The idea is that people eventually will play movies, songs, radio stations, TV channels or Web sites from all over the home. The devices to access and control the entertainment will be computers, handheld gadgets and many other devices.
Linksys has developed devices to connect the home. The Kiss acquisition gives it software, which has been sold in Europe. The software is aimed at making it easier for people to use networking devices. Linksys wants its home networking technology to be universal before it’s launched in the U.S. and the rest of the world.
The networking product won’t likely ship until later this year.
“We’re really trying to refine the user interface,” Tsao said. “We want to go beyond the current PC base to the consumer.”
Linksys has made some smaller moves on the consumer front.
In January, Linksys unveiled a device with Yahoo! Inc. that allows digital music to be played all around a home.
Linksys’ new Wireless-G Music Bridge links songs stored on computers to home stereos via wireless frequencies. It also works with Yahoo! Music Engine.
Competition for its consumer devices won’t come from Linskys’ traditional home networking competitors, such as Taiwan’s D-Link Corp., which has operations in Fountain Valley.
Instead, Linksys must watch Japan’s Sony and South Korea’s Samsung Electronics Co., said Jonathan Gaw, an analyst with IDC Research Inc. in Framingham, Mass.
The big consumer electronics makers already have the market heft to make their way into the home networking market.
“It’s harder for a Linksys to get into consumer electronics,” Gaw said.
On the other hand, Sony and others could stumble. Computer maker Apple Computer Inc. has seen blockbuster sales of its iPod, to the dismay of Sony and others.
Another Cisco Buy
Helping Linksys on the wired home front could be a pending acquisition by Cisco.
Late last year, Cisco said it planned to spend nearly $7 billion on Scientific-Atlanta Inc., a top U.S. maker of cable TV set-top boxes and cable modems.
Although Scientific-Atlanta is expected to be a separate division under Cisco, the company’s home networking gear could be combined with the cable TV and broadband pipes.
Tsao was hesitant to talk about Scientific-Atlanta because the deal hasn’t closed. But he said the two product lines could “really be tied in together.”
Linksys already has about 60% of the home networking market.
“They’ve got good leadership that has a strong vision for where they’re going,” IDC’s Gaw said.
The company also wants to expand into home networking’s close cousin: the small-business sector.
Already, small-business owners use Linksys’ routers and other networking gear to hook up a home or small office without the cost of a full Cisco system.
Linksys is looking to expand its Internet-phone based systems to small businesses through a program called Linksys One.
Cisco started the program a few years ago as part of an effort to extend its large corporate systems to customers with less than 50 computer users.
As the small-business program entered its test phase, Cisco decided to tap Linksys’ experience with small businesses and the sector’s slimmer profit margins.
“We kind of internally acquired the division,” Tsao said.
Linksys One eventually could post more than $1 billion in annual revenue, according to Cisco.
While 29% of large businesses use voice over Internet protocol phone systems, only 4% of small businesses use the cost-cutting technology, said Matthias Machowinski, an analyst with Infonetics Research Inc. in Boston.
Linksys One combines an Internet phone device with software, making it easier to install the system for small businesses that don’t have a technology department.
And Linksys is working with MCI, which recently was bought by New York-based Verizon Communications Inc., to offer Internet connections to run phones and data systems.
The MCI partnership helps Linksys against competitors in the small-business market, such as Basking Ridge, N.J.-based Avaya Inc., Machowinski said.
“Linksys is more comprehensive,” he said.
