On Tuesday, Cisco announced that it is acquiring Acacia Communications for $2.6 billion, according to Business Insider.

The deal is a very wise decision by Cisco and may help it to remain a dominant force in the network hardware industry. Acacia produces optical networking chips and other hardware that telecom service providers like Cisco rely on.

The service provider network is one area where Cisco has struggled to grow. The purchase of Acacia will help to boost its credibility in the area and eliminates a competitor in the industry. Acacia sells important components for network hardware and routers, but doesn’t sell the whole thing together.

Cisco on the other hand builds full systems to sell. These systems aren’t modifiable and so many companies turned to Acacia for parts to compile their own network hardware. The acquisition of Acacia removes a major supplier of parts to Cisco’s top competitors.

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Economics, Finance and Investing