Cisco Needs a New Shopping Spree

With more than $10 billion in annual free cash flow, Cisco(CSCO Quote) may soon be shopping for new acquisitions as it hopes to maintain its long-term growth target of 12% to 17%.

But analysts say CEO John Chambers won't pull the M&A trigger until he sees the absolute bottom of the economic downturn.

"Chambers is looking for bargains, I'm sure, but it's not the main driver. He likes to consolidate during downturns and come out stronger," says American Technology Research analyst Mark McKechnie. "Cisco has built itself around its acquisitions. People will be thinking about what Chambers will do a lot more now that the fiscal fourth quarter is over."

By acquiring 50 companies in the past five years alone, the networking gear giant has developed a reputation of being an aggressive buyer that uses purchases to expand into new areas and key side markets. It's no coincidence that over those same five years, revenue has jumped nearly 80% as Cisco's share price has added about 25%.

However, with a lack of big purchases in the last year, Cisco shares have fallen more than 20%.

"Regarding our cash on hand, I can tell you that Cisco's business strategy is to make investments for growth," Cisco spokesperson Heather Dickinson told TheStreet.com. "[Cisco] believes that its use of cash provides the company with the flexibility to make strategic investments in the business, including R&D, acquisitions and share buyback."

Cisco's cash may already be burning a hole in its pocket. On the company's last quarterly conference call, Cisco executives said that going forward they will likely acquire small- to medium-sized businesses rather than large ones. "If you think about what we're going to do, we usually acquire ... when we move into new markets that we do not have the expertise for the product segments in," said CEO John Chambers.