VMware has announced it is paying a total of $1.26bn for software-defined networking (SDN) specialist Nicira. The virtualisation specialist is hoping tiny Nicira, which was founded in 2007 and is private equity-backed, will give it the edge in the fast evolving virtual network space. The move is also set to be one of the final big plays at VMware under CEO Paul Martiz, ahead of his move over to VMware’s majority owner EMC (see EMC shuffles management and signals healthy Q2).
Naturally VMware isn’t buying revenues or clients here. Nicira has very little of either to speak of. Rather, it is aiming to acquire some cutting-edge technology and, if all goes to plan, competitive advantage.
You can see the logic, despite the hefty price tag. VMware has enjoyed huge success and growth as a leading player in server virtualisation as both service providers and corporates have bought into the benefits of virtualising their assets. It simply can’t afford to miss out on one of the next big waves in infrastructure virtualisation - i.e. virtualising networks within datacentre environments.
So, with this acquisition, VMware is also buying time. By stealing a march on the likes of Citrix and Cisco in SDN, it hopes it can stay at the forefront of virtualisation software technology developments and hence market growth. It needs to. As the company’s Q2 results - also released last night - once again underline, VMware is a player that has built up expectations of sustained high growth in recent years. Indeed Q2 growth was 22% year-on-year, with total revenues reaching $1.12bn. Taking its foot off the gas simply isn’t an option for VMware.