UPDATED 19:36 EDT / AUGUST 22 2019

CLOUD

VMware pays billions to acquire Pivotal Software and Carbon Black

Virtualization giant VMware Inc. put its money where its mouth is today, announcing the acquisitions of software development platform provider Pivotal Software Inc. and cybersecurity firm Carbon Black Inc.

VMware said it’s buying Pivotal for $2.7 billion, while Carbon Black will cost it an additional $2.1 billion.

The deals, expected to close before January 2020, come just days before the start of the company’s big annual VMworld event in San Francisco. They’re the latest and biggest of a long string of acquisitions in the past 20 months by what some consider the most important member of the expansive Dell Technologies Inc. family of companies.

“These acquisitions address two critical technology priorities of all businesses today — building modern, enterprise-grade applications and protecting enterprise workloads and clients,” VMware Chief Executive Officer Pat Gelsinger (pictured) said in a statement. “With these actions we meaningfully accelerate our subscription and software-as-a-service offerings and expand our ability to enable our customers’ digital transformation.”

Pivotal and Carbon Black are very different companies, but both have a focus on the modern workloads Gelsinger is looking to address. In Pivotal’s case, it offers a software development platform for building modern apps that’s based on open-source technologies such as Cloud Foundry and Kubernetes. Carbon Black provides the tools needed to secure those applications.

John Furrier, host of theCUBE, SiliconANGLE’s mobile livestreaming studio, said today’s acquisitions were all about VMware filling the gaps in “Cloud 2.0 workloads.” They will allow VMware to support applications running on any cloud infrastructure platform, he said.

“Cybersecurity continues to be a huge issue and software is key to that market, so VMware is getting endpoint security that is cloud-native,” Furrier said about Carbon Black. “Pivotal with Cloud Foundry gets them a nice middle layer between apps and infrastructure for developers, and apps that are going to need cloud-native support specifically around microservices.”

Today’s acquisitions follow VMware’s purchase of Bitnami Inc. earlier in the year. That move that was also designed to help VMware bring its technology into a future where virtual machines are just a part of the equation, Furrier said.

In a conference call following today’s acquisitions, Gelsinger said they would enable the company to address three growing trends within enterprise information technologies.

“First, multicloud is the new model for enterprise IT,” Gelsinger said. “Second, digital transformation is driving accelerated pace of cloud-native app development. Last but not least, as businesses move applications to the cloud and access it over distributed networks and from a diversity of endpoints, security has become a significant challenge and priority.”

With regard to Pivotal, the combination of its development platform and VMware’s infrastructure capabilities will allow the company to deliver a “comprehensive Kubernetes portfolio” for building and managing modern apps, Gelsinger explained.

The Kubernetes angle seems pivotal indeed for VMware, as Pivotal has in recent months fully embraced the container orchestration software. A few months ago, for example, it announced the upcoming launch of Pivotal Application Service on Kubernetes, which adds more features to its Cloud Foundry-based platform for developers who want to move their apps into software containers so they can run unchanged on multiple computing platforms.

Pivotal has also worked with VMware prior to today’s announcement on integrating Kubernetes with its platform, via the companies’ joint Pivotal Container Service.

“Pivotal Labs is a great team to help customers adopt cloud-native methodologies,” Wikibon analyst Stu Miniman told SiliconANGLE last week when reports of the acquisition first emerged. “When Pivotal was created, there was a huge gap between where VMware was and where Cloud Foundry was going, but they need to be tied more closely together for both to succeed in the future.”

The Pivotal deal also makes entirely good business sense for the companies, which are both a part of the larger Dell Technologies Inc. family, said Charles King of Pund-IT Inc. He said Pivotal’s poor performance on the stock market in recent months meant VMware was getting it at a bargain price, paying more or less what the company’s shares traded at when it first went public.

“The deal is entirely sensible since between them, since Dell and VMware already own about two-thirds of Pivotal’s shares,” King said. “In other words, VMware is the most logical buyer and has structured a deal that involves paying a relatively modest amount of cash to Pivotal shareholders and trading its own stock for the Pivotal shares that Dell holds. In all, it’s a graceful resolution for a company that sadly failed to live up to the promise of its IPO.”

As for Carbon Black, the plan here is to combine it with VMware’s own security offerings to create “a modern security cloud platform for any application, running on any cloud, on any device,” the company said in a statement.

Carbon Black’s cloud-native security platform uses big data and behavioral analytics technologies, and provides endpoint protection against cyberattacks. These are all capabilities that are largely missing from VMware’s current infrastructure security offerings and services, King said.

“With Carbon Black onboard, VMware should be able to fashion solutions that offer customers top grade security regardless of the devices, locations or cloud platforms involved,” King said.

Analyst Holger Mueller of Constellation Research Inc. agreed that Carbon Black was a substantial addition to VMware, as endpoint security is critical at a time when more applications are moving to the public cloud and companies are increasingly operating hybrid cloud strategies. It can also be very profitable, he said.

“Carbon Black fits in well with Dell’s and VMware’s ambition to grab a sizable chunk of this hybrid cloud revenue,” Mueller said.

The acquisitions came as VMware reported its second-quarter financial results, which beat expectations. It reported earnings before certain costs such as stock compensation of $1.60 per share on revenue of $2.44 billion, up 12 percent from a year ago.

Wall Street was hoping for earnings of $1.55 per share on revenue of $2.43 billion. Despite that performance, VMware’s stock was down more than 5% in after-hours trading, possibly because of concerns about VMware’s big spending on acquisitions and the need to integrate those acquisitions into the company.

Wikibon analyst Dave Vellante dug deep into VMware’s moves and their implications in this breaking analysis video:

Photo: SiliconANGLE

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