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Cisco Looks Beyond Video With Tandberg Buy

Stocks in this article: CSCO

(Updates share price)

SAN JOSE, Calif. ( TheStreet) -- Cisco's (CSCO) surprise acquisition of Tandberg has cast a spotlight on the firm's video-conferencing strategy, although the $3 billion deal could be a shrewd move that boosts sales of the company's core networking products.

The networking giant, which is trading around $23, is seen as an attractive stock with upside potential. The Tandberg deal barely made a dent in Cisco's $29 billion cash haul, and the company is well-positioned for the anticipated rebound in tech spending.

Because the networking space already is saturated with its switches and routers, however, it makes sense for Cisco to carve out new revenue streams. The company recently bought Pure Digital, maker of the Flip video camera. By buying Tandberg, Cisco CEO John Chambers has taken the firm's video strategy to a new level.

Chambers has been making a song and dance about video for years, although Cisco's efforts have largely centered on the high end of the market. Tandberg extends this reach downstream. The Norwegian firm raked in sales of $808 million last year, and is the 800-pound gorilla in video conferencing.

"Video is the next big thing," wrote William Choi, an analyst at Jefferies & Company, in a note released Friday. "Customers are increasingly adopting video conferencing to save on travel costs and reduce their carbon footprint -- we expect Cisco to further drive adoption with the Tandberg acquisition."

Don't be fooled by all this brouhaha, though. Video may have seized the technology zeitgeist thanks to the phenomenal popularity of YouTube and other video sharing sites, but Cisco still has its eye on its core technologies.

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