Hewlett Packard Enterprise Co. today announced it will pay $650 million in cash to acquire SimpliVity Corp., a provider of unified server and storage hardware and software for corporate data centers.

Known in the industry as software-defined, hyper-converged infrastructure, these systems bring together servers, storage and networking to handle tasks inside data centers much more simply, with costs and ease of use closer to those of cloud computing providers such as Amazon Web Services. SimpliVity’s systems compete with the likes of Nutanix Inc., whose shares more than doubled when it went public in September to give it a valuation of $5 billion, and broader hardware suppliers such as Dell EMC.

The sale of the seven-year-old Westborough, Massachusetts-based company represents a sizable premium over its revenues. Stu Miniman, an analyst with Wikibon (owned by the same company as SiliconANGLE) pegged sales at $95 million in 2015. But its 2016 revenues came in well south of $200 million, according to industry insiders — below expectations for such a fast-growing segment.

As a result, the purchase price was well below the hopes of investors, who had expected the exit would be as big as Nutanix’s. Indeed, one account in The Register in November intimated that HPE was prepared to pay as much as $3.9 billion for SimpliVity. The company had raised more than $276 million in venture funding, crossing a billion dollars in valuation at one point. Investors included Accel Partners, Charles River Ventures, DFJ Growth, Kleiner Perkins Caufield & Byers, Meritech Capital Partners and Waypoint Capital.

The deal price suggests that hyperconverged infrastructure may not have quite the legs investors had hoped, at least for startups that may struggle to compete with more established companies. “We believe the drop in valuation could indicate that growth prospects may be less robust than may have been anticipated,” Barclays Capital Inc. analyst Mark Moskowitz said in a note to clients.

Izhar Armony, a general partner at Charles River Ventures, shed some light on the valuation in a post on Medium: “The business has not weakened since its Unicorn round in early 2015, in fact it has grown significantly,” he wrote. “But the financial market environment has changed significantly, including public market valuations, and so have the prices large public companies pay for assets like SimpliVity.”

The hyperconverged market was estimated at $2.4 billion in 2016, and it’s expected to grow at a compound annual growth rate of 25 percent, to nearly $6 billion, by 2020. Dell EMC is the leader in hyperconverged among traditional IT providers and Nutanix is the winner that came out of the startup crop that also includes Pivot3 Inc., Stratoscale, Maxta Inc. and Diamanti Inc.

Some of those are potential acquisition targets, but Miniman said there are not too many potential buyers other than Cisco Systems Inc. And if Cisco is inclined to make an acquisition in this area, he said, the only likely one is Springpath Inc. Cisco has a close partnership with the company to offer Springpath software on Cisco hardware sold through resellers.

Beyond the fate of rival startups, SimpliVity gives HPE a major weapon in its broad-based battle with Dell EMC.

“This transaction expands HPE’s software-defined capability and fits squarely within our strategy to make Hybrid IT simple for customers,” HPE Chief Executive Meg Whitman said in a statement. “More and more customers are looking for solutions that bring them secure, highly resilient, on-premises infrastructure at cloud economics. That’s exactly where we’re focused.”

HPE said it will continue to offer its existing hyperconverged products, the HC 380 and the HC 250, and SimpliVity customers and partners will see no immediate change in the product roadmap. HPE will continue to support existing SimpliVity customers and platforms.

“Over the past 8 years we’ve been on an incredible journey and joining HPE is the logical next step for SimpliVity,” CEO Doron Kempel (above) said in a statement. “HPE’s broad sales reach, extensive partner channel, complementary technology and commitment to innovation will accelerate SimpliVity’s journey and significantly strengthen our ability to deliver the best-in-class hybrid IT solutions our customers are looking for.”

Miniman noted that HPE has its own in-house hyperconverged infrastructure technology mainly derived from LeftHand Networks, a storage virtualization firm it acquired in 2008. HPE also offers what it calls “composable storage” which tries to go beyond hyperconverged infrastructure. Miniman said HPE will need to port SimipliVity software to its servers, which he said won’t take long.

Antonio Neri, executive vice president and general manager of HPE’s Enterprise Group, offered more details on HPE’s thinking behind the deal, which he expects to close by the end of its second quarter ending April 30. “Essentially, companies want the cloud experience – faster speed, better economics and ease of use – without sacrificing control and security,” he said. “Hyperconverged infrastructure can do that. SimpliVity’s software-defined hyperconverged infrastructure is designed from the ground up to meet the needs of customers.”

Kempel and other SimpliVity executives have appeared numerous times on theCUBE, SiliconANGLE’s mobile video studio. Here’s a collection of those interviews:

With reporting from Robert Hof

Image courtesy of HPE