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Deals That Could Speed Up Cisco's Software Makeover

Networking giant Cisco Systems Inc. (CSCO) has laid out some targets in its transition to more of a software company. CFO Kelly Kramer told analysts at a meeting Thursday, June 29, the company wants to boost software from 22% of sales this year to 30% by 2020.

If Cisco's prior playbook is an example, the San Jose, Calif.-based company will use M&A to meet its goals. Analysts suggested that companies such as networking software developer Apstra Inc., IT systems data analysis outfit Splunk Inc. (SPLK) or data center infrastructure software company Nutanix Inc. (NTNX) could be attractive targets.

"Cisco is known for its steady acquisition pace throughout the years and I don't see this changing any time soon." said Morningstar analyst Ilya Kundozerov in an email to The Deal. "[T]he software-and-services focused acquisitions are a must for the company in order to be able to keep adding more subscription-based software on the top of its hardware.

"I think we are surely to see more smaller, tuck-in acquisitions this year along the automation, AI and IoT subjects," Kundozerov added.

Cisco's purchases this year include the $610 million purchase in early May of Viptela Inc., which develops cloud...