Service Provider Cloud

HPE Buys SimpliVity for $650M in Hyperconverged Cloud Play

HPE is buying SimpliVity, a pioneer in so-called "hyperconverged" cloud servers, for $650 million, to help increase HPE's muscle in the hybrid cloud infrastructure market.

"This transaction expands HPE's software-defined capability and fits squarely within our strategy to make Hybrid IT simple for customers," said Meg Whitman, president and CEO of Hewlett Packard Enterprise, in a statement. The companies expect the deal to close in the second quarter of HPE's fiscal 2017, which ends in April.

Hyperconverged infrastructure combines compute, storage and networking into preconfigured systems that are managed by software. Conventional data center infrastructure separates compute and storage; combining the two is designed to simplify management.

Hyperconverged infrastructure gives companies "the cloud experience -- faster speed, better economics and ease of use -- without sacrificing control and security," HPE's Antonio Neri, executive VP and general manager of the HPE enterprise group, said in a statement.

SimpliVity, headquartered in Westborough, Mass., was founded in 2009. Its technology provides data protection and resiliency for improved backup and restoration, improved storage utilization and virtual machine efficiency to control cost and performance, always-on compression and deduplication to improve capacity savings by 90% on storage and backup and VM-centric policy-based management to simplify operations and enable data mobility for improved developer and end-user productivity, HPE says.

Nutanix, which competes with SimpliVity in the hyperconverged market and was founded the same year, had an IPO in September. (See Nutanix IPO Blesses Hyperconverged Data Centers and Nutanix Takes Hyper-Convergence Downscale.)

Heavy Reading Analyst James Crawshaw was skeptical of the acquisition.

The purchase price, $650 million, is well below the $3.8 billion to $3.9 billion purchase price rumored in November, Crawshaw said. It's also lower than the implied value of $1 billion in SimpliVity's 2015 funding round.

SimpliVity laid off staff, with $95 million revenue in its 2016 fiscal year, Crawshaw noted.

Nutanix shares were up 1% in after-hours trading, to $30.35. "This suggests investors are not overly worried that SimpliVity will be a greater threat under HPE's umbrella," Crawshaw said.

HPE stock was flat after hours, at $22.69, after dropping 1% during the day.

HPE already has hyperconverged products -- the HC 380 and HC 250, and HPE plans to continue offering those, while also making no immediate change to SimpliVity's product roadmap. It will continue to support that company's customers an partners, HPE says.

Within 60 days of closing the transaction, HPE will offer SimpliVity Omni Stack software qualified for ProLiant DL380 servers, and roll out additional technology on ProLiant in the second half of 2017, HPE says.

HPE declined to comment on what will happen to SimpliVity's CEO, leadership team and staff. They're beginning planning on that, a company spokesman said.

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HPE estimates the hyperconverged market to be about $2.4 billion, growing at 25% compound annual growth rate (CAGR) and reaching nearly $6 billion by 2020, Neri says. (See HPE's Whitman Sees 'Inexorable March' to Public Cloud.)

Cisco introduced its own hyperconverged server in March. (See Cisco Storms the Hyperconverged Data Center.)

HPE is a leader in the cloud infrastructure market, with $1.25 billion revenue and 14.9% market share in the third quarter of 2016. Revenue was essentially flat year-over-year, and the company lost about a point of market share. Dell has a slight lead on HPE, with $1.3 billion revenue and 15.5% market share in the third quarter 2016, down in both revenue and market share year-over-year. Cisco Systems Inc. (Nasdaq: CSCO), meanwhile, is gaining both market share and revenue. (See Cisco Gains, Dell & HPE Lose on Cloud Infrastructure - Analyst.)

— Mitch Wagner, Follow me on TwitterVisit my LinkedIn profile, Editor, Light Reading Enterprise Cloud

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