VMware Purchases Nicira
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Recently VMware (NYSE: VMW) agreed to purchase Nicira for $1.26 billion in cash and equity. Nicira is considered the pioneer in software-defined networking and will be adding to VMware’s lineup of server virtualization software. Similar to the way VMware’s virtualization partitions operating systems to perform the tasks of multiple computers, Nicira subdivides a network to operate like a dozen networks. VMware expects Nicira’s software will help it improve the efficiency of computers in a data center.
Nicira is the first company to deliver complete network virtualization, which will work on any network. Their platform allows customers to simply and rapidly program network services on top of the physical network, rather than directly configure it one element at a time. This creates better utilization of IT assets and data by allowing all IT components to be treated as a flexible pool of resources. Nicira’s service dramatically increases business and operational efficiency for its customers, making their product a valuable tool.
VMware delivers solutions in virtualization and Cloud infrastructure, reducing complexity and enabling more flexible, agile service delivery. Their approach accelerates the transition to Cloud computing while preserving existing investments and improving security and control. The addition of Nicira’s capabilities allows VMware to also provide its customers with a more efficient means of virtualization. One might say this gives VMware all of the pieces. They will have security, control, and efficiency, which are vital to any organization.
However, this might be only a small part of why Cisco (NASDAQ: CSCO) and Juniper (NYSE: JNPR) are nervous about the acquisition. Nicira’s virtualization technology has centered its business model around eliminating proprietary Ethernet switches and replacing them with commodity gear managed by Nicira software. Cisco is reported to be working on a similar solution, but its main priority still remains selling its proprietary Nexus and Catalyst ethernet switches. Juniper’s Ethernet switches are also still a large piece of the company. Though Nicira currently has minimal sales, VMware’s backing could aid in growth in that area.
VMware’s acquisition of Nicira is certainly a smart move for VMware. Combining the companies’ technology and resources will give companies such as Cisco and Juniper a run for their money. In fact, their share prices have already slumped just on news of the deal. VMware now has the upper hand in virtualization technology. How they use that technology and Nicira’s platform to grow their business will have a large effect on their competitors. VMware, however, only stands to profit.
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