Cisco: Mizuho Cheers Renewed Effort for Custom Chips

Mizuho Securities USA’s Joanna Makris today reiterated a Buy rating on shares of Cisco Systems (CSCO) and a $24 price target, writing that the company is taking a renewed interest in spinning its own application-specific integrated circuits (ASIC), as evinced by the announcement Friday Cisco intends to purchase Santa Clara, California-based startup LightWire for $271 million in cash and incentives.

LightWire produces integrated optical interconnects on a single semiconductor for networking equipment.

Cisco will probably use the LightWire transceiver technology to make its own optical modules for Cisco’s gear, she thinks, and Cisco will also probably use its home-grown ASICs for future product in the company’s data center “fabric” products and in its “Nexus” line of switches.

That would be a “key departure from competitors, including Juniper [Networks],” she writes. It may help Cisco ward off competition from low-price switch vendors Brocade Communications (BRCD) and privately held Arista Networks. Using more ASICs will both lower Cisco’s costs and separate Cisco from those vendors, who use off-the-shelf, merchant silicon, writes Makris.

Cisco shares today are up 9 cents, or half a point, at $20.23.