Last week Cisco announced its intention to acquire Splunk for $157/share, equalling around $28 billion. If it goes ahead it will be Cisco’s largest. Splunk’s total revenues have grown to be roughly the same as Cisco’s security sales (my Figure above). One difference is that Splunk’s business is moving rapidly towards a cloud subscription model (see later); in comparison Cisco’s is dominated by network hardware sales. 
If Cisco had already added Splunk to its business (see my Figure above), its sales would have been $60 billion in the year to the end of June, with its hardware sales at 54% of the total. If we take all of Splunk’s revenues to be to do with security, then security sales would have been bigger than applications for the new Cisco; however I expect there will be some reduction in the combined value. Combining revenues usually results in ‘1+1≤2’. 
Splunk has been successful in growing its subscription business (as we see in ‘cloud services’ as a proportion of its total revenues in my Figure above). This will be attractive to Cisco which, as a major supplier of proprietary network equipment, can use the acquired company to help modernize its sales approach.
On the downside:
- Splunk has never been profitable; since 2013 its net profits have beeen -25% of its revenues. In fact its fourth quarter 2023 was the only time it posted a positive value.
- The slowness of the market led both companies to announce redundancies. Splunk announced 325 (around 4% of its 8k workforce) in February and Cisco, 4,100 in December 2022 (around 5% its total). The merger will no doubt bring more for those with duplicate roles.
In addition Cisco may be a bit nervous of regulator verifications, espcially in the UK where decisions have become more negative following Brexit.
However overall this looks like a sensible move for Cisco; security is one of the few growing sectors of the IT market and Splunk has built a good business since its entry in 2003.