Cisco Systems Inc. said yesterday it plans to buy Pure Digital, the company behind the popular Flip Video camcorder, for about $590 million in stock.

The deal is part of Cisco's aggressive expansion beyond its core business of making computer-networking gear. On Monday, the San Jose, California-based company announced that it would start selling servers, to compete for a broader share of the money that big organizations spend on the "data centers" that run their computing operations. (See: Cisco diversifies into video with $590 million acquisition of Pure Digital)

Cisco Systems Inc. said yesterday it plans to buy Pure Digital, the company behind the popular Flip Video camcorder, for about $590 million in stock.

The deal is part of Cisco's aggressive expansion beyond its core business of making computer-networking gear. On Monday, the San Jose, California-based company announced that it would start selling servers, to compete for a broader share of the money that big organizations spend on the "data centers" that run their computing operations.

John Chambers, who has said a weak economy is an opportunity to invest, is using Cisco's $29.5 billion in cash to enter new markets through acquisitions. Chambers has said that he's particularly interested in video products for consumers.
 
For San Francisco-based Pure Digital Technologies Inc., the acquisition is a big payday. The privately held company sold its first camera less than two years ago, quickly drawing accolades for its ease of use. A signature feature of the Flip Video is that a USB connector flips out of the case, letting the user connect the camera directly to a computer. Editing software contained on the camera then starts up on the computer.

Cisco will also pay as much as $15 million in equity incentives to retain Pure Digital workers, according to a statement. Founded eight years ago, Pure Digital is backed by venture-capital firms Sequoia Capital and Benchmark Capital and has 102 employees. Other investors include Benchmark Capital, Focus Ventures, Crescendo Ventures, Steamboat Ventures, VantagePoint Venture Partners, Samsung Ventures, AllianceBernstein LP, Morgan Stanley Principal Investments and Heights Capital Management Inc.

Cisco will use Flip Video's software, which automatically connects and uploads images to the Internet, as a platform for other consumer products, said Ned Hooper, Cisco's senior vice president of corporate development and consumer groups. ''We are looking to go global and create an emerging opportunity that will drive and accelerate growth for us,'' he said

The deal is expected to close in Cisco's fiscal fourth quarter, which ends in July. Pure Digital's chairman and CEO, Jonathan Kaplan, will become the head of Cisco's consumer business group, which mainly sells under the Linksys brand. Home routers are its main products, but it also launched a wireless home audio system this year.

Cisco shares fell 27 cents, or 1.6 per cent, to close at $16.23 on NASDAQ yesterday.