Cisco to buy Lightwire to bring optics to the data center

Lightwire's optics transceiver

Cisco (s csco) said Friday it is buying Lightwire, a company that makes optics chips using traditional chip manufacturing techniques in a deal valued at $271 million. This is a significant acquisition for Cisco because it stays true to its core networking business and advances it with some pretty deep technology, which is just the thing to keep Cisco ahead of the growing pack of lower-cost competition on the switching side and the looming threat of open, software-defined networks.

Lightwire, which was formed in 2002, makes an optical transceiver using traditional CMOS manufacturing technologies. Competitors include Luxtera, Intel (s intc) and IBM (s ibm). Such transceivers are becoming more important for two reasons. One, thanks to the ability to use the CMOS manufacturing process ,the chips are priced for mass use in the data center, unlike traditional optical chips. Two, the use of optics means the chip can deliver faster bandwidth using less power, speeding up I/O between servers. Both are good in today’s power-constrained and highly demanding data centers, running applications such as Hadoop clusters or data analytics. Here’s the money quote form the release:

The acquisition of Lightwire will support our data center and service provider customers as they manage the continuing deluge of network traffic alongside tight capital and operating budgets,” said Surya Panditi, senior vice president, Cisco Service Provider Networking Group. “With the combined know-how from Cisco in silicon design and Lightwire in CMOS photonics, we will transform Cisco’s optical connectivity business to an integrated technology platform that supports our customers’ burgeoning need for cost-effective high-speed networks.”

The deal plays to Cisco’s networking strength and also advances it with some hard-core chip technology — a key element of Cisco’s plan to differentiate itself from competitors using merchant silicon, such as Arista. Sources in Silicon Valley in the networking space have been telling me that Cisco needs to counter the threat of merchant silicon by either adopting it and driving prices (and Cisco’s margins down), or by investing in “physics problems” — basically the type of R&D that got Lightwire to its product.

Earlier this month, Cisco CEO John Chambers said Cisco was ready to make more acquisitions . This one looks worth watching.