Cisco Systems Inc. CSCO recently announced its plan to buy software management startup, ContainerX. The terms of the deal have been kept under wraps.

San Jose, CA-based ContainerX offers software applications to manage containers for corporate customers. These software applications are run across different data centers and clouds to better manage containers. They are an alternative to virtual machines and are sometimes regarded as more flexible. The company’s first beta version was released last November and was made available everywhere in June.

Upon the completion of the deal, the ContainerX team which consists of eight people will become part of Cisco's Cloud Platform & Services Group, augmenting its offering to service providers. The integration of ContainerX’s software solutions into Cisco’s portfolio is in support of its strategy of increasing software-centric solutions to streamline network management. These solutions will save time and energy and lead to operational efficiency.

Cisco is now keen on expanding its business into new verticals. Though the container market is still in its nascent stage, it is viewed as a key area for future growth by many technology firms.

We believe that in keeping with the revival in demand for software and IT products, the requirement for virtualization software which helps to build, test and deploy applications on various system will increase. This reflects an attempt by the company to improve the productivity of each server.

The news came on the heels of Cisco’s recent announcement to reduce the head count by 5,500 or 7%, from the first quarter of fiscal 2017. The company intends to reinvest the cost saved from these actions in priority areas such as security, IoT, collaboration, next generation data center and cloud.

Cisco Systems is a leading provider of IP-based networking and other products. In the recently reported fiscal fourth quarter, Cisco's earnings of 58 cents per share surpassed the Zacks Consensus Estimate by 3 cents. Also, revenues increased 5.3% sequentially but declined 1.6% year over year to $12.6 billion, which came above the Zacks Consensus Estimate of $12.5 billion.

We believe that these acquisitions will broaden Cisco’s customer base and product offerings, providing it with a significant competitive edge.

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Cisco carries a Zacks Rank #3 (Hold). Some well-placed stocks in the same space are Silicon Laboratories Inc. SLAB, sporting a Zacks Rank #1, and Intel Corp. INTC and Inphi Corporation IPHI, carrying a Zacks Rank #2 (Buy).

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