Building Six on Cisco Systems' sprawling San Jose campus looks much like the others, from the signs out front to the computer lab buzzing with engineers wearing Cisco ID badges.

Technically, though, most of them aren't working for Cisco. Building Six is also home of Andiamo Systems, a start-up conceived, housed and even partly staffed by the networking industry powerhouse. Compared to most of Cisco's 36,000 workers, whose stock options are undercut by the company's sagging share price, Andiamo's 313 employees have a much better shot at making big money from Cisco stock.

Andiamo, which develops switches for computer networks used especially for storing data, is a spin-in: a company Cisco created and funded, intending later to acquire it.

Cisco's investment already amounts to nearly half of Andiamo, and it has said it will acquire the rest by 2004 from Andiamo's other owners, which are its 313 employees. The purchase price could range from nothing to $2.5 billion, depending on Andiamo's future product sales. A figure near the middle of that range would average out to nearly $4 million an employee.

The deal would be among the most unusual of Cisco's more than 80 acquisitions since 1993, which include several spin-ins.

Cisco pioneered spin-ins, a concept so unusual that Stanford University teaches a case study about it. Andiamo is unique among the spin-ins because 37 of its employees are also Cisco staffers, on leave to work for the start-up. It is also the only acquisition to be announced two years before it will become final, and the only Cisco spin-in to pay out only if the product sells.

Ideally, Cisco says, spin-ins combine the integrated product development that can happen inside a company with a start-up's intense focus and speed. The Andiamo setup, spawned in early 2001, seemed especially right for the time, balancing the need to attract engineers in what was then an extremely tight job market against caution as Cisco considered entering an emerging risky niche.

``You have to think about the environment in 1999, 2000 and 2001,'' said Ammar Hanafi, Cisco's vice president and general manager for new business ventures. ``Talent was very scarce. We were trying to create a structure that allowed you to capture the benefits of an entrepreneurial start-up while still taking advantage of the collaboration and the business relationship with Cisco,'' he said.

Cost for shareholders?

Some observers say the deal is not sufficiently independent -- that Cisco employees could gain financial rewards at the expense of Cisco shareholders.

Silicon Valley venture capitalists would have eagerly funded start-ups to develop products Cisco might want to acquire, said Steve Kamman, analyst at CIBC World Markets. ``It's tough to see that that wouldn't lead to an equally high-performance piece of equipment. In today's environment you could probably negotiate a pretty good price for it.''

Andiamo's acquisition price was set under a more conservative formula than previous spin-ins: Not counting start-up and interim funding of about $180 million, Cisco could acquire it at no additional cost if Andiamo products don't sell. But the price could go up to $2.5 billion if sales take off. Cisco says the price won't be finalized until soon before the deal closes in 2004. Cisco will begin selling Andiamo gear this year under Cisco's brand name -- and with business partnerships that less-connected start-ups would envy.

Andiamo -- which means ``let's go'' in Italian -- uses Cisco office and lab space just like any division of the giant company. Cisco employees who joined Andiamo switched their regular green Cisco badges for red ones that contractors wear, but they didn't have to change their phone extensions.

Still independent

Executives say close ties don't compromise Andiamo's independence. ``I pay Cisco thousands of dollars a month for this floor, for resources, for telecom, for use of the network, lab space -- just like any company would,'' says Andiamo Chief Executive Buck Gee.

Gee is also a former Cisco employee, though he hadn't worked there for several years. He joined Cisco through its first acquisition, of Crescendo Communications, in 1993. At Crescendo, Gee worked for current Cisco Chief Development Officer Mario Mazzola, who initially helped oversee the Andiamo project for Cisco. At Andiamo, Gee says, ``my first job was really to negotiate the deal with Cisco.''

Ramesh Sivakolundu, another early Andiamo employee, was managing a Cisco chip-design team when he was approached about moving to the start-up. The challenge -- developing an ambitious project for an untapped niche -- appealed to him, as did the potential financial reward. Like the other 36 Andiamo workers ``seconded'' from Cisco, Ramesh's Cisco stock options stop vesting while he's at Andiamo.

It's not a deal every worker would take -- and not every Cisco employee got the chance.

``I had close to 30 people (on my team) and when I moved to Andiamo, only one more person came with me,'' said Ramesh. ``They were working on a project that couldn't be interrupted,'' Ramesh said, but ``people who were not given the opportunity were upset.''

Executives with both companies emphasize that Andiamo could fail, potentially leaving employees without jobs. ``It would be just like any start-up that fails,'' Gee said.

Financial gains

Critics -- including competitors, analysts and some Cisco employees -- say Cisco formed the spin-in largely to keep employees who were no longer satisfied with Cisco's compensation, as stock prices sank. Cisco denies that, saying the financial incentives associated with the spin-in were more helpful in recruiting outside engineers than in keeping current Cisco employees. Ramesh, for instance, says he wasn't looking to leave Cisco.

Some outside Cisco say spin-ins have a place among the various ways the company could develop products.

``It's definitely difficult to replicate the culture of a start-up inside their enterprise,'' says Garth Saloner, a professor at Stanford University's Graduate School of Business. He learned about spin-ins at breakfast with Mike Volpi, a former student and the Cisco executive who conceived the practice a few years ago.

Saloner teaches about spin-ins in a class on entrepreneurship where Volpi generally makes an appearance. Some students are skeptical. They think some previous spin-ins were too costly for Cisco, he says. ``Students find it hard to believe that Cisco couldn't do it themselves.''

Cisco executives acknowledge that engineers are easier to attract these days -- that if they were to enter the storage business from scratch now, it wouldn't be through a spin-in.

The company, which for years has fought a reputation for getting too much of its new technology through acquisitions, is attempting to develop more products in house.

``The times are very different now,'' Hanafi said. ``It's a different set of choices. Does that mean we'll never do them? I don't know.''