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Martin LaMonica

Staff Writer, CNET

Cisco Systems is beefing up its investment in software-related technologies in an effort to capture a larger chunk of technology budgets and spur revenue growth.

The networking giant is evaluating ways to extend beyond its core switching and routing businesses and slice off corporate spending typically devoted to software purchases, according to people familiar with Cisco’s plans. As part of the strategy, the company is ramping up its internal development in software “plumbing” and evaluating whether to acquire a smaller company, sources said.

Cisco’s bread-and-butter business is gear that transports packets of network traffic across companies or over the public Internet. Now the company is looking to enhance its routers and switches with the ability to handle network messages that carry XML documents, said people familiar with Cisco’s plans. Rather than push IP packets around a network, the new products would transport XML documents and provide basic routing capabilities based on the contents of XML messages.

A Cisco representative said the company had no comment.

The push to so-called “application-layer” switching is driven by Cisco’s need to boost its top-line revenue, said analysts. The company is facing increasingly strident competition in its core networking hardware lines and wants to provide a broad line of higher-value products.

“It’s a win for Cisco because they’ll become an even more entrenched vendor that can do pretty much everything,” said Robert Whiteley, an analyst at Forrester Research. “It helps drive upgrade cycles for their routers and switches, and there is actual performance gains and cost efficiencies by taking things, such as security, out of silo-ed applications and putting them into a central network.”

The use of XML and XML-based protocols called Web services is catching on for electronic communications and application development. Business documents, such as purchase orders, are increasingly being formatted in XML, which can be interchanged relatively easily between disparate systems.

XML and related technologies create a standardized mechanism to share information, but that mechanism does come at the cost of processing overhead, particularly for tasks such as security and data format translation.