Breaking: Analysis: VMware Buys Nicira For $1.26B in Cash

Big news in what SiliconANGLE has been calling the biggest disruption in generations – Converged Infrastructure.   VMware is buying privately held Nicira Inc for about $1.26B in cash to expand its network virtualization portfolio.

The deal is expected to close in the second half of 2012.  VMware just recently announced that Pat Gelsinger will be taking over at CEO for Paul Maritz.  I had the in-depth angle on that announcement here – Industry Analysts Got It Wrong On VMware CEO Transition From Paul Maritz To Pat Gelsinger

As I said just last week VMware is on a journey to build an entirely new IT market and platform, where applications are built specifically for scale, where massive data-sets will be aggregated and analyzed in real time, where on-premise or off-premise datacenters are an option and where the conversation shifts from IT consolidation to business growth.

We’ve been covering the notion  I/O centric infrastructure on SiliconANGLE and Wikibon.org and there are two areas that stand out:  1) emergence of Solid State Devices SSDs and 2) software defined networking.


Spinning disk IO and packet based networks are the final bottlenecks that need to be solved.  This Nicira deal highlights the networking innovation that solved the old Cisco and Juniper issues.  Ironically Cisco announced today that they are laying off 2% of their workforce, 1,300 employees, while VMware and their ecosystem is “gearing up”.

The Software Defined Networking space has been hot and we’ve been covering it on SiliconANGLE and on our research site Wikibon.org.  See the latest research note from Stu Miniman here.

Networking Industry Gearing Up for Changes

Ethernet is the plumbing that runs every data center and connects every company to the Internet. Changes in the networking world take a lot of time; even the relatively mundane adoption of the next speed bump takes over a decade to make its way through standards and customer adoption. As companies deal with the impact of increasing growth paired with shrinking budgets, IT staffs require automated infrastructure that can simplify operations. The buzz in the networking community is about new models of architecture ranging from Ethernet Fabrics to Software Defined Networking (SDN) and Network Virtualization. As networking has been dominated by Cisco for so long, the question of the day is: Are these new technologies disruptive, and do customers have a strong enough desire to adopt these technologies that they will move to a new vendor to get them?

While Ethernet Fabrics are defined easily as enabling scalable, high bandwidth architectures that replace Spanning Tree Protocol (STP), SDN is more of an architectural model than a product set. Juniper and Arista have offered programmability as part of their solutions for years.

According to Ben Horowitz,  an investor in Nicira,

In one bold step, VMware moves from a footnote in the networking market to the clear technology leader in Software Defined Networking and more specifically — and importantly— Cloud Networking. By combining Nicira’s technology with VMware’s market-leading server virtualization and cloud products, VMware today creates a clear path to becoming the most important infrastructure company across servers, networks and storage for the next 10 years.

Outlook for VMware and Enterprise market

The next 5 years will mean navigating substantial change around converged infrastructure and big data (our top coverage areas at SiliconANGLE.com, #theCUBE, and Wikbon.org).

Let’s face it, VMware is already the default platform for the datacenter, it’s theirs to build upon.  And if storage and server vendors play their cards right, they can operationalize their server and storage business to support both legacy scale-up datacenters as well as the emerging scale-out datacenter.  If they build a best-in-class services team behind it, they control how quickly they have to eat their own dog food.

VMware basically can’t lose. They will be playing both sides of the fence in a market where storage doubles every two years.

Fast Moving New Networking Market

Between 2006 and now the market in networking and software defined has been interesting to watch.

You basically had three types of companies:  1) Pure plays; 2) Software Defined Networking and 3) Overlay Distributed Mesh.

Pure Play:  In the pure play area you had Nicira, CloudFlow, and Big Switch at L2 with Nicira the thought leader.  However, Big Switch is stacked with Stanford Phds.  No doubt a big ‘billion dollar’ validation for the entire space.  The idea of open switch to orchestrate across the physical and virtual networks is a powerful paradigm and very much needed in today’s cloud explosion.

Software defined networking:  Here you have all the Layer 4-7 services with companies like Embrane, Cisco, CohesiveFT, and others.

Overlay Distributed Mesh:  This is basically an overlay network over cloud infrastructure.  Cloud bursting, ad hoc security, DR sites, and overlay VLans, etc.  Lots of east west optimization stuff on the network.

Merchant Silicon:  This acquisition also highlights the battle between custom and merchant silicon. Cisco primarily uses its own chips, while most of the other Ethernet switch makers use chips from Broadcom. At the recent Dell Storage Forum conference, SiliconANGLE.tv sat down with Broadcom’s CTO of Infrastructure and Networking, Nick Ilyadis, to discuss the role of networking software (including SDN). Watch the full video here.

VMware Leadership 

As I said just last week VMware is on a journey to build an entirely new IT market and platform, where applications are built specifically for scale, where massive data-sets will be aggregated and analyzed in real time, where on-premise or off-premise datacenters are an option and where the conversation shifts from IT consolidation to business growth.

The next 5 years will mean navigating substantial change around converged infrastructure and big data (our top coverage areas at SiliconANGLE.com, theCUBE, and Wikbon.org).  Let’s face it, VMware is already the default platform for the datacenter, it’s theirs to build upon.

VMware is positioned to establish (as Paul Maritz describes) a “hardened top” to abstract away the complexities of the cloud and middleware.  This will create an enabling platform for developers and position VMware to work with any company to establish viable converged infrastructures.    Converged infrastructures and new middleware markets will power the modern applications being thrust on to the technology consumer and enterprise scene.  In addition VMware is positioned to support both legacy scale-up datacenters as well as the emerging scale-out datacenter.

VMware is pumping.  I can’t wait for VMworld next month.  Damn it’s going to be fun.

About John Furrier

Founder and CEO of SiliconAngle.com.