Cisco, a hardware network equipment company, has made a series of significant announcements in security and observability in 2022, with a move to drive end-to-end security with real-time data and AI.
In September 2023, Cisco revealed its intention to acquire Splunk for $28bn in cash, making it the company’s largest acquisition deal ever, as predicted by GlobalData in its report, ‘Mergers And Acquisitions In Tech, Media, And Telecom (TMT) 2022 Themes – Thematic Intelligence’, where it stated that Splunk would be a key takeover target in 2023 and that Cisco was one of the potential acquirers.
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Cisco has a strong position in computer networking, but its growth has stalled due to both the weakness of its telecom operator customers as well as the shift of enterprise IT to the public cloud, where it enjoys a less dominant position than in the traditional enterprise.
Cisco’s dependency on its legacy hardware equipment sales means that it still accounts for the majority of revenues but is a lower growth and margin business than software. This business segment has also suffered supply chain disruption and a post-pandemic slump. It has been attempting to diversify its revenue streams by investing in software and services, particularly security and collaboration.
What will this deal bring to the Cisco table?
Splunk’s strength in security information and event management means that it will effectively enhance Cisco’s XDR (extended detection and response) to offer compelling AI end-to-end security and other cybersecurity capabilities, optimizing IT infrastructure and bringing an observability solution to the marketplace.
The company has a strong presence in cybersecurity, application monitoring, and business analytics and its strengths lie in harnessing data and AI capabilities for hybrid environments to deliver stronger cybersecurity solutions for clients. Its technology will allow clients to monitor and analyse data to reduce hacking risk and will accelerate the resolution of technical issues.
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By GlobalDataThe acquisition of Splunk will allow Cisco to rapidly strengthen its competitive landscape, especially in the cybersecurity market where it expects to gain a critical advantage by acquiring the leading security analytics platform in the market along with a loyal customer base. Cisco has been building its ‘End-to-End Security’ business for over a decade both via organic investments and acquisitions, including Sourcefire, ThreatGRID, OpenDNS, CloudLock, Observable Networks, Kenna Security, and Lightspin. Yet none were as large as Splunk.
The impact on security information and event management (SIEM) market
Many concerns have arisen from previous Cisco acquisitions, which suffered from inadequate investment and a lack of focus, potentially affecting the quality of the SIEM (Security Information and Event Management) services on which security leaders rely. Cisco’s acquisition of Splunk means a turning point in the SIEM market. Also, there might be concerns among Splunk’s users who may need more clarification about Cisco’s security contribution and its potential effect on Splunk’s innovation. These concerns may eventually lead to a dilemma for Splunk customers in exploring competitive alternatives, which might be a windfall for Splunk’s competitors. But it is early days and Splunk customers are more likely to be looking for reassurance in the short term.
What does the future hold for this deal?
Cisco’s acquisition of Splunk is likely to be a game changer that underlines Cisco’s strategy to shift the company from hardware-centric to software-centric. However, the future of this deal is still uncertain.
The deal’s success will be based on how effectively Cisco and Splunk execute their vision and harness their strengths in the AI era. And given the greater interest in tech M&A deals, this deal may still catch the eye of regulators such as the Federal Trade Commission, as well as European and UK authorities.
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