Cisco’s $5 billion purchase of British video-tech company NDS Group is a powerful sign that CEO John Chambers meant what he said last month about stepping up M&A.  It’s also an example of Cisco using its sizable stockpile of overseas cash.

After overhauling the company last year, Chambers told analysts on the company’s  last earnings call that “we curtailed our M&A activity as we worked hard to refocus. Now with our strategy executing well, we expect to be more active with acquisitions in the quarters and years to come.”

Actually, Cisco never really stopped buying smaller companies; it reported six deals last year and five in 2010. But it hadn’t announced a deal valued at ten figures since 2009, when it paid $2.9 billion for Starent Networks and $3.4 billion for Tandberg.

Many people  expect Chambers will be keeping an eye out for other deals in the months to come. Before NDS, Cisco had accumulated $46 billion in cash and short-term investments, which is enough money to burn a hole in anybody’s pocket.

Most of that money comes from overseas revenue, and Cisco has been keeping it parked overseas to avoid the higher U.S. taxes it would have to pay if it brought the money here. (It’s already paid the relevant foreign taxes.) Chambers has been especially vocal among high-tech CEOs who say they’d like to bring their overseas revenue home, to invest or return to shareholders, if the US would only lower its tax rates.

Chambers confirmed to analysts that the money to buy UK-based NDS would come from Cisco’s overseas warchest.

“That was not the primary reason” for the deal, he added. “We would have done it if it were in the US. But the fact that it was international cash made it a lot easier because we have got $46 billion sitting there, not being utilized as effectively as our shareholders want us to.”

Brandon Bailey writes about enterprise IT and other tech subjects. You can reach him at bbailey@mercurynews.com or Twitter.com/BrandonBailey

Brandon Bailey Brandon Bailey (142 Posts)

Brandon Bailey covers Google, Facebook and Yahoo for the San Jose Mercury News, reporting on the business and culture of the Internet.