(Reuters) - Software maker Oracle Corp will buy Acme Packet Inc for $1.7 billion net of cash as billionaire CEO Larry Ellison expands into the networking equipment market long dominated by Cisco Systems Inc.
Acme is best-known for selling hardware that telecommunications companies and big corporations buy to manage the transmission of phone calls using the same technology as Internet communications.
Oracle is the world’s No. 3 software maker and one of the top makers of high-end business computers. Analysts said the deal could signal a broader move into networking equipment, one of the few areas in technology where Oracle is not a major player.
“We have been expecting Oracle to make a bigger push into the networking market,” said Brian White, an analyst at Topeka Capital Markets. “Convergence across the IT world appears to be inevitable.”
Analysts described Acme as a good fit for Ellison’s company because it expands existing ties with telecommunications providers, many of whom are already heavily dependent on Oracle’s business management software and database for running their internal operations.
“It’s Oracle continuing to broaden out their product and footprint step by step,” said FBR Capital Markets analyst Dan Ives. “This fits right in with their strategy.”
Acme said that 89 of the world’s top 100 communications companies use its products to help deliver communications traffic. They include BT Group Plc, China Telecom Corp, Microsoft Corp’s Skype, O2 and Verizon Wireless.
Analysts said Acme’s jewel is its software, which they expect Ellison to bundle into appliances running on Oracle’s existing line of Sun computers. They expect Oracle to build out a new line of networking equipment running on Sun servers, with Acme Packet being one of the first such products.
The agreed-upon price represents a 22 percent premium to Acme Packet’s closing price on the Nasdaq on Friday. Oracle agreed to pay $29.25 per share in cash, representing a fully diluted equity value of $2.1 billion.
Oracle shares were down 2.9 percent at $35.14 on Monday afternoon on the Nasdaq. Shares of Acme Packet were up 22 percent at $29.23.
An Oracle spokeswoman declined comment.
In July, Oracle bought Xsigo, another company involved in this emerging and rapidly growing technology area that has become known as software-defined networking. Its products allow businesses to reduce the amount of networking gear in data centers by replacing much of their functionality with software that is centralized in one or more servers.
Cisco and Oracle rival VMware Inc have also made several acquisitions of software-defined networking companies over the past year.
“Software-defined networking is still in the early stages, but it is something that Oracle is clearly looking at,” said Gartner analyst Akshay Sharma.
Oracle did not disclose terms of the Xsigo deal, one of about a dozen companies it bought in 2012.
“Acme is a quick, easy beachhead for them,” said Maxim Group analyst Greg Mesniaeff. “They have a lot more to do, but it certainly is a start.”
Shares of Acme rival Sonus Networks Inc also rose on the news, and were up 17.5 percent at $2.68 on Monday afternoon.
Acme has been hit by weak telecom spending in the last few quarters as carriers spend less on new projects and delay existing ones. Its shares had fallen 18 percent in the last year as of Friday.
Also on Monday, Acme reported fourth-quarter earnings of 9 cents per share, excluding items, on revenue of $70.7 million.
Analysts expected an adjusted profit of 8 cents per share and revenue of $68.9 million, according to Thomson Reuters I/B/E/S.
Reporting by Sayantani Ghosh in Bangalore, Jim Finkle in Boston, and Nicola Leske in New York; editing by Sreejiraj Eluvangal, Saumyadeb Chakrabarty and Matthew Lewis