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Cisco Takes New Aim at Hewlett-Packard

A buy of closely held FineGround pushes Cisco deeper into a rival's territory on servers.

Updated from 10:05 a.m.

Cisco

(CSCO) - Get Report

takes another step deeper into

Hewlett-Packard's

(HPQ) - Get Report

server business with the acquisition of closely held

FineGround

.

The San Jose, Calif., Internet gearmaker said Thursday that it will pay $70 million in cash and stock options for the Campbell, Calif.-based maker of data center networking systems. The purchase is the second this year by Cisco in the network server arena. Last month, Cisco

agreed to pay $250 million for

Topspin

, a Mountain View, Calif.-based server switching shop.

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Cisco has been searching for new growth markets beyond its core networking router and switching business, which has been under attack from price-cutting rivals such as

Dell

(DELL) - Get Report

and China's

Huawei

. The company's intention to move into H-P's turf seemed to be apparent when former H-P CEO Carly Fiorina

abruptly resigned from Cisco's board in September 2003.

With the addition of FineGround, Cisco will add network optimization products to its hardware lineup. Using technology from outfits such as Topspin and FineGround, Cisco hopes to develop a new generation of server and storage gear that can handle data more securely and efficiently.

"This acquisition further enhances Cisco's strategy to converge application acceleration, security and a highly available network infrastructure seamlessly in the data center," Cisco security chief Jayshree Ullal said in a press release Thursday.

A Cisco representative pointed out that the company has a strategic alliance with H-P and disputed the notion that the two companies are in competition. "We are working to expand the strategic alliance to aggressively grow into new areas," says the rep.

FineGround's chief, Nat Kausik, a former H-P engineer, will stay on and run the unit for Cisco.

For those keeping score, Cisco is paying about $1.6 million per employee for FineGround. That is slightly less than the $1.8 million per employee Cisco shelled out for Topspin.

Cisco shares rose 19 cents to $19.81 in early trading Thursday.