The networking giant will pay $450 million in stock and assumed options for the privately held company, according to officials at Cisco in San Jose, Calif. Pending federal approval, the deal is expected to close by the end of April, officials said.

Airespace, also based in San Jose, will join Cisco's Data Center, Switching and Wireless Technology Group, led by senior vice president Luca Cafiero. Founded in July 2001, Airespace has about 175 employees.

Airespace is one of a handful of companies that remain in the WLAN switch space, which focuses on centralized management of thin access points from a feature-rich switch and companion software.

Read more here about Cisco's acquisition talks with Airespace.

Other companies in the space include incumbent Symbol Technologies Inc. and startups Aruba Wireless Networks Inc. and Trapeze Networks Inc. Airespace, Aruba and Trapeze, along with Cisco, have been vying for a major contract to update Microsoft Corp.'s massive campus WLAN, which currently uses Cisco hardware. Airespace has been a front-runner to win the deal.

Cisco's participation in the WLAN switch space up until now has been a strategy called the SWAN (Structured Wireless Aware Network). Among various management offerings, SWAN includes a wireless blade called the WLSM (Wireless LAN Services Module), which fits into its Catalyst 6500 networking switch. Generally, WLSM customers are those who already owned Catalyst 6500 switches. The company has yet to release a WLSM for any of its other switches.

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In the near term, Cisco will continue to offer both the SWAN and Airespace product lines. Cisco officials say plans call for eventual integration, but that the personnel on both sides should remain intact.

"At the close of the deal, we'll offer both sets of products," said Bill Rossi, vice president and general manager of the Wireless Networking Business Unit at Cisco. "The whole SWAN vision is really unchanged. The discussions that we've had over the last several weeks indicate that it integrates into our portfolio quite nicely."

Cisco's feature-rich access points are notoriously expensive. The company has considered but has never unveiled a line of thin access points; Airespace provides that. Furthermore, Airespace's Airespace Control System software is widely considered more comprehensive and easier to use than Cisco's WLSE (Wireless LAN Solution Engine).

"It makes a lot of sense," said Craig Mathias, principal at Farpoint Group, a consultancy in Ashland, Mass. "Clearly, Cisco doesn't have that class of product today. The core issue will be integrating all that [management] software. That will be a big deal, but not impossible."

Cisco officials noted that Airespace's software was key to the acquisition decision.

"If you look at their expertise in both control and management, that's what we didn't have," Rossi said. "And Airespace does. Our management software was designed for the vertical market, for customers who were used to managing [feature-rich access points.] Ultimately, we plan to merge into one cohesive, single product line."

Next Page: Shaking up rivals' business plans.

The acquisition may be a thorn in the side of Cisco's networking competitors, specifically Nortel Networks Ltd., Alcatel SA and NEC Corp., all of whom resell Airespace equipment.

"Cisco will immediately turn the WLAN business plans of Nortel, Alcatel and NEC on their heads," said Ken Dulaney, vice president of mobile computing at Gartner Inc. in San Jose, Calif. "There will be a wild scramble, possibly some buyouts, etc. These companies and their clients will be worried."

It's not clear what will happen to the existing OEM agreements.

"We're going to have to figure that out," said Brett Galloway, CEO of Airespace, who said he plans to stay on with Cisco after the acquisition. He declined to say what his new position will be.

Cisco has been shopping around for a WLAN switch company off and on for quite a while. The company came very close buying Aruba more than a year ago, when the WLAN switch industry was still nascent, but ultimately decided to try developing a WLAN switch strategy in-house, according to several industry sources.

Click here to read about Cisco's moves to strengthen WLAN security.

When Cisco came calling again recently, Aruba turned down the offer, according to officials at Aruba in Sunnyvale, Calif.

"They approached us a little before Thanksgiving, wanting to discuss potential possibilities," said Keerti Melkote, co-founder and vice president of product marketing at Aruba.

"We're always open to partnerships, but they said that they wanted to control the technology. It was an acquisition or nothing. Once you get sucked in by a big player, it stifles innovation. And our vision at the end of the day doesn't match Cisco's vision of where the industry is going."

The acquisition of Airespace marks a consolidation trend in the maturing WLAN switch space. German networking incumbent Siemens AG bought WLAN switch vendor Chantry Networks Inc. last month.

Wireless security company Fortress Technologies last October acquired the technology assets of Legra Systems Inc., another WLAN switch company, which had focused largely on security. And Airflow Networks left the WLAN switch business in April.

Cisco chief technology officer Charlie Giancarlo recently told eWEEK that he was looking to acquire security companies; the wireless industry also is buzzing with rumors that Cisco may acquire Airdefense Inc.

"All the various companies in that market are potential acquisition targets," said Eric Janszen, a venture consultant at Trident Capital in Westport, Conn., and the former CEO of wireless LAN security hardware vendor Bluesocket Inc.

Cisco has had an extensive and mixed history of wireless company acquisitions over the past several years. The acquisition of Aironet Wireless Communications—and its access-point hardware—in 1999 contributed largely to Cisco's leadership in the wireless LAN space.

But Cisco's acquisition of fixed wireless player Clarity Wireless Corp. in 1998 foundered, and the acquisitions of in-building cellular players JetCell Inc. and Exio Communications Inc. in 2000 led to few innovations from Cisco.

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