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VMware to Buy SDN Startup for More Than $1B

Craig Matsumoto
7/23/2012
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VMware Inc. (NYSE: VMW) announced Monday that it's acquiring Nicira Networks Inc. , the prominant software-defined networking (SDN) startup, for $1.05 billion in cash.

The deal is actually worth a little more, as VMware is adding $210 million worth of unvested equity awards, according to the company's press release.

Nicira, for those not familiar with the name, is one of the startups that sprang from the OpenFlow work initially done at Stanford University . The company only launched in February.

The deal is expected to close in the second half of 2012.

Why this matters
If there was any doubt that SDN has reached fever pitch, this should dispel it. The biggest name in server virtualization is buying one of the hot startups that's most closely tied to SDN.

SDN is usually discussed as a way of virtualizing the network -- an extension of the work VMware already does. The acquisition could solidify an early leadership position for VMware in network virtualization.

But it could also be seen as a sign that VMware had quickly fallen behind as the SDN craze took hold. Only last week, VMware changed CEOs in order to better pursue the idea of the virtualized data cetner. It's clear now that the company is working hard to redefine itself for the next wave of virtualization.

For more



— Craig Matsumoto, Managing Editor, Light Reading

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Pete Baldwin
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Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 5:26:56 PM
re: VMware to Buy SDN Startup for More Than $1B


What's this mean for Cisco's relationship with VMware/EMC?  Brad Casemore brought that up on Twitter: "the EMC-Cisco divorce could be imminent."

Sisyphus
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Sisyphus,
User Rank: Light Beer
12/5/2012 | 5:26:56 PM
re: VMware to Buy SDN Startup for More Than $1B
..as usual everybody will still pretend to be friends and emphasize the synergistic nature etc... But Cisco has to replace the vSwitch pretty quickly.
Pete Baldwin
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Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 5:26:55 PM
re: VMware to Buy SDN Startup for More Than $1B


> ..as usual everybody will still pretend to be friends and emphasize the synergistic nature etc... But Cisco has to replace the vSwitch pretty quickly.


I'm doing a followup story along those lines. I'd tend to agree with you, although I've found at least one non-VMware person who disagrees. 

Pete Baldwin
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Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 5:26:51 PM
re: VMware to Buy SDN Startup for More Than $1B


NY Times says Nicira's price was 25x what investors put into it.


http://bits.blogs.nytimes.com/...


(hat tip: @BradCasemore on Twitter)

BigBro
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BigBro,
User Rank: Lightning
12/5/2012 | 5:26:48 PM
re: VMware to Buy SDN Startup for More Than $1B


As I posted in another discussion thread: what's the next move?


Will EMC, which is already a hardware vendor, expand to become a networking hardware vendor? If they chose to buy, it would seem their choices are pretty much limited to Arista and Brocade at this point.

patentchoi
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patentchoi,
User Rank: Light Beer
12/5/2012 | 5:26:22 PM
re: VMware to Buy SDN Startup for More Than $1B


Nicira is threatening the margins of physical switch vendors by removing the dependency on their high-margin features/line-cards.


But it would be a massive effort for the VMW sales folks to capitalize on this opportunity. They are only in the data center and enterprise with almost no presence in service provider.


There is a long battle ahead and VMW has $1B less in its limited war-chest.

Pete Baldwin
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Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 5:26:22 PM
re: VMware to Buy SDN Startup for More Than $1B


That's true, Nooser, but it's the data center that VMware is mainly interested in.  It's going to be a while before SDN starts to make major changes in the service provider area.

patentchoi
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patentchoi,
User Rank: Light Beer
12/5/2012 | 5:26:20 PM
re: VMware to Buy SDN Startup for More Than $1B


Even in the DC it is going to be tough. Providers such as Google and Amazon most likely would not use a Nicira product. In enterprises, closed solutions such as UCS (with ONE), Q-fab etc will make it hard to justify network-virtualization exclusively at the server-virtualization layer. The primary assumption of the Nicira solution is a dirt-cheap IP fabric and it is doubtful if such solutions exist.

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