The buy is Cisco's second so far this month, having taken a majority stake in data centre company Nuovo Systems earlier this month.

Arroyo will give Cisco a greater range of offerings for video-on-demand, which allows users of traditional cable television and IPTV (Internet Protocol TV) to purchase and watch content such as music videos, television shows, and feature films, at the place and time of their choosing.

Arroyo's software will likely be integrated with set-top boxes and equipment from Cisco's earlier purchase of Scientific-Atlanta, valued at $7bn, which was announced in November last year, and which closed in February this year. Scientific-Atlanta was one of the world's largest producers of set-top boxes.

The Arroyo deal will close before the end of Cisco's first fiscal quarter for 2007, which ends on October 31, 2006. The acquisition will become part of the Cisco Cable & Video Initiatives Group, the company says.