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John Chambers, chief executive of Cisco Systems, speaks during a news conference at at the 2010 International Consumer Electronics Show (CES) in Las Vegas, Nevada January 6, 2010.
John Chambers, chief executive of Cisco Systems, speaks during a news conference at at the 2010 International Consumer Electronics Show (CES) in Las Vegas, Nevada January 6, 2010.
(Steve Marcus/Reuters)

FINANCIAL TIMES

To acquire, or give back cash? That is the tech giant question

Lex is a premium daily commentary service from the Financial Times. It helps readers make better investment decisions by highlighting key emerging risks and opportunities.

Bloated technology mainstay X buys sexy, high-growth, no-profit upstart Y for an outrageous price. Latest example: Cisco Systems Inc. last week shelling out $2.7-billion (U.S.) for security software maker Sourcefire. Cisco paid eight times Sourcefire’s forward revenue (no need to even broach profitability multiples). The deal is no different from others that the likes of Oracle, Microsoft and IBM have struck in recent years to buy their way into the latest mobile, cloud, virtualisation trend.