By Rachael King 

Cisco Systems Inc. said Monday it plans to pay $1.7 billion to acquire BroadSoft Inc., a maker of cloud-based communications software, as the networking giant steers further away from its legacy hardware and into sales of software and services.

The deal, valued at $1.9 billion including debt, to buy BroadSoft, based in Gaithersburg, Md., would help the networking giant increase recurring revenue from subscription-based services, which Cisco CEO Chuck Robbins has said is core to its growth strategy. Increasingly, software and services are driving value in corporate technology, while hardware -- such as Cisco's routers and servers -- face price pressures due to commoditization.

BroadSoft's stock is up about 31% this year to $53.90 as of Friday's close, while Cisco's has risen about 13% to $34.25.

Cisco shares were up 0.6% to $34.44 in premarket trading, while trading shares in BroadSoft was halted.

BroadSoft makes a so-called unified communications software product that combines video, voice, messaging, screen sharing, file sharing and conferencing in an application accessed online. The company also makes software for call centers and team collaboration that workers can access online. The company sells software to a range of customers such as large service providers.

Although Cisco's over all revenue declined 4% in the most recent quarter from the year-earlier period, the company increased by 50% the portion of product deferred revenue related to recurring software and subscriptions. These recurring offers constituted 31% of its total revenue, up 4 percentage points from the year-earlier period.

Cisco has also begun to create cloud-based subscription services to help customers manage its own networking hardware. "Our objective is to continue moving to cloud-managed solutions across our entire enterprise networking portfolio," Mr. Robbins said on a call with securities analysts in June. "This is where we're headed," he added.

Over a five-year-period, subscription-based services can add 20% more revenue than simply selling perpetual, or permanent, software, Mr. Robbins told analysts.

BroadSoft is the seventh company Cisco has acquired this year, and the second-largest after its $3.7 billion deal to buy AppDynamics.

Write to Rachael King at rachael.king@wsj.com

 

(END) Dow Jones Newswires

October 23, 2017 08:55 ET (12:55 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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