Cisco Buys Into Portal Software

Leading networking company Cisco Systems (Nasdaq: CSCO) bolstered the status of newly public Portal Software (Nasdaq: PRSF) on Wednesday, with an investment and a strategic alliance.

Cisco announced that it has purchased three million shares of Portal Software, which provides customer management and billing software for providers of Internet-based services, for approximately $39 million (US$). Cisco has also selected Portal Software to be its strategic customer marketing and billing software for next generation Internet Protocol (IP) services.

“Because the IP services market is in a constant state of evolution and substantial growth, service providers are investing in Internet infrastructures that can support their businesses within this changing environment,” said Don Listwin, executive vice president at Cisco. “Cisco views customer management and billing as an extremely important component of a service provider’s Internet infrastructure, and Portal’s software offers real-time functionality to meet the changing needs of this market.”

Cisco Benefits Financially

The deal has already paid off for Cisco financially because the company invested in Portal Software at a discount. The approximately $39 million Cisco spent represents less than 1/3 of the actual market value of Portal Software at the end of trading on Wednesday. Shares of Portal Software stormed ahead more than 29 percent on Wednesday, climbing 9-3/8 to close at 41 after being as high as 58. At 41, Cisco’s three million shares of Portal Software are worth $123 million.

Portal Software, of course, will benefit from Cisco’s reputation and customer base.

“This strategic alliance between Cisco and Portal … sends a clear message that customer management and billing for IP and next-generation services is a strategic technology,” said John Little, founder and CEO of Portal Software.

Portal Software went public at $14 and closed at 40-5/8 last Thursday.

Solid Quarter For Cisco

In related news, shares of Cisco climbed 6-7/8 to 118-3/4 on Wednesday. The company reported a 33 percent increase in profits and overall impressive third-quarter results after the markets closed on Tuesday. Cisco reported net income of $646 million, or 38 cents a share. Analysts surveyed by First Call expected earnings of 37 cents a share.

Cisco’s quarterly revenue climbed to $3.15 billion, a 44 percent increase from the $2.18 billion reported a year ago. Cisco also announced a two-for-one stock split. After the report, Gruntal & Co. upgraded Cisco to buy from hold, while Sutro & Co. upgraded Cisco to buy from outperform.