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VMware’s Buying Nicira for $1.26 Billion

It’s VMware’s biggest acquisition ever and should close this half

VMware has cut a deal to acquire privately held Nicira Inc and its cloudy open source network virtualization widgetry for $1.05 billion in cash plus roughly $210 million in unvested equity awards. So that makes a tidy $1.26 altogether.

It's VMware's biggest acquisition ever and should close this half.

Paul Maritz, now VMware's lame duck CEO and going out with a bang, said in a statement that "VMware has led the server virtualization revolution, and we have the opportunity to do the same in data center and cloud networking. The acquisition of Nicira adds to our portfolio of networking assets and positions VMware to be the industry leader in software-defined networking."

Although new to production, Nicira (say nice era) is supposed to have pioneered software-defined networking, which enables the dynamic creation of virtual network infrastructure and services that are decoupled and independent from the physical network hardware.

Its OpenFlow-based widgetry could compete against VMware's buddy Cisco.

Its chi-chi early customers include AT&T, DreamHost, eBay, Fidelity Investments, NTT and Rackspace, which are using its Network Virtualization Platform (NVP) to accelerate service delivery from weeks to minutes and reduce complexity and cost.

The widgetry reportedly works on any cloud environment and on any hypervisor in the enterprise and with service providers.

VMware said it will continue "to support the open principles and technologies that have made Nicira solutions successful, including the Open vSwitch to connect physical networks and multiple hypervisors and the open extensibility framework to implement business-level policies from any cloud management system. This will allow enterprises and service providers to create the most flexible network topologies that seamlessly span any cloud environment."

That includes self-proclaimed VMware enemies like OpenStack and the less virulent CloudStack.

The acquisition is supposed to give VMware a full suite of software-defined networking capabilities and a comprehensive solution lineup for virtualizing the network from virtual switching to virtualized layer 3-7 services.

It said customers will be able to "create a pool of network capacity on top of any network infrastructure from which they can easily support tens of thousands of isolated virtual networks with the simplicity and operational ease of creating and managing virtual machines."

It's all supposed to be terribly, terribly sexy and according to Nicira backer Ben Horowitz terribly, terribly clever of VMware, which he now elevates to the position of technology leader of cloud networking.

The five-year-old start-up is backed by New Enterprise Associates, Andreessen Horowitz and Lightspeed Venture Partners to the tune of $39.5 million according to CrunchBase, a pretty return for the VCs.

VMware also posted its Q2 results. They were in-line with expectations. Revenue in the June quarter rose 22% year-over-year to $1.12 billion, yielding EPS of 68 cents. Wall Street was figuring 66 cents on $1.12 billion. The results were pre-announced last week when VMware said Maritz will be stepping and replaced by EMC's top talent Pat Gelsinger in September.

VMware is projecting revenues of $1.11 billion-$1.15 billion this quarter. Analysts expect $1.14 billion.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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