UPDATED 18:34 EDT / MAY 01 2017

CLOUD

Cisco to acquire rival software-defined networking startup Viptela for $610M

Updated with more analyst and competitor comments:

An increasingly acquisitive Cisco Systems Inc. Monday announced plans to buy Viptela Inc., a five-year-old upstart rival maker of software to create companywide data networks without the cost of dedicated hardware.

The acquisition, for $610 million in cash and assumed stock awards, is expected to close in the second half of this year. The company sells so-called software-defined wide-area networks companies use to connect all their sites to each other and the cloud.

Cisco’s main goal appears to be complementing its own SDN technology, including its cloud-based Meraki products acquired in 2012. Cisco is in the throes of a transition from a declining networking hardware business to a software-driven business that generates more recurring service revenues. In its second fiscal quarter ended Jan. 28, its routing, switching and data center products all fell for the fifth straight quarter.

“Acquiring Viptela will enable us to expand our portfolio, with increased functionality delivered through the cloud,” Rob Salvagno, head of Cisco’s M&A and venture investment team, said in a blog post. “With Viptela, Cisco can offer customers more choice in their enterprise branch offices and WAN deployments, with a compelling SD-WAN solution that is easy to deploy and simple to manage.”

Viptela will become part of the enterprise routing team within Cisco’s Networking and Security Group, which is led by Senior Vice President and General Manager David Goeckeler.

“Everything in information technology is going software defined, and networks and WAN are no exception,” Holger Mueller, vice president and principal analyst at Constellation Research, told SiliconANGLE. “With the recent closure of the Cisco public cloud offering, Cisco needs both platforms as well as fast-growth revenue streams, and Viptela gives them that.”

However, Barclays Capital Inc. analyst Mark Moskowitz said the acquisition could present some negatives. “Adding another SD WAN offering (IWAN and Meraki previously) could cause some customer confusion and product rationalization challenges in the near-term,” he wrote in a note to clients. “We think it’s interesting that Cisco chose to acquire Viptela after making investments in SD-WAN competitor VeloCloud previously.”

Indeed, competitors such as Riverbed Technology Inc.128 Technology Inc. and Silver Peak Systems Inc. rushed to insist that the acquisition showed Cisco’s routing business is on the wrong track.

“Cisco’s ISR, re-spun as ‘iWAN,’ its low-end Wi-Fi solution Meraki repackaged as SD-WAN, an investment in Velocloud, and now Viptela – it’s a perfect example of what inevitably happens when an incumbent takes its eye off the ball, fails to address the evolving needs of its customer base in the face of a disruptive new technology and ends up trying buy its way into a new market, like SD-WAN,” Paul O’Farrell, senior vice president and general manager of Riverbed’s SteelHead Products Group, wrote in a blog post Tuesday.

Andy Ory, chief executive of 128 Technology, said in an email that SD-WAN is “not a viable, long-term market to solve the greater issues with routing – the critical enabler of Internet communications, but a technology segment that hasn’t seen true innovation since the 1990s.”

Viptela, which was founded by three former Cisco executives, had pitted itself directly against Cisco in its marketing. “There are quite a few players in the pool of SD-WAN vendors, but one of them — startup Viptela — is making a bigger splash than most,” the company declared on its site, though it seems likely that particular claim will soon disappear.

Cisco, always an acquisitive company, has been spending big lately. In January, it bought AppDynamics Inc. for $3.7 billion just before the business applications monitoring company was set to go public.

It might have gotten a deal in Viptela, which was reportedly valued at $875 million at the time of its last fundraising, a $75 million Series C round a year ago led by Redline Capital Management, according to Crunchbase. Other investors include Sequoia Capital, Moment Ventures and Northgate Capital. The company had raised a total of $108.5 million, so $610 million wasn’t a bad return either.

Photo: geralt/Pixabay

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