VMware Pushes Deeper Into Data Center With Nicira Buy
07/23/2012| 06:17pm US/Eastern
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--VMware agrees to buy networking company Nicira in deal worth $1.26 billion
--Deal aims to quicken VMware's goal to create software-defined data centers
--Midpoint of third-quarter revenue guidance falls short of analyst views
(Adds details throughout, including quote from VMware.)
By Steven D. Jones
VMware Inc. (>> VMware, Inc.) pushed deeper into the data-center business Monday by agreeing to acquire networking company Nicira Inc. in a deal valued at $1.26 billion, one of its priciest purchases ever.
The maker of so-called virtualization software that more efficiently uses computing power also reported its full second-quarter results and provided third-quarter revenue guidance in which the midpoint fell short of analysts's views.
Shares of VMware, up 7.3% in 2012, fell 3.8% to $85.80 in after-hours trading.
Nicira makes virtual networks that can be built rapidly on unused network capacity, similar to the approach VMware has taken to create virtual computers on a single computer server. Combining the companies is an attempt to quicken VMware's goal of creating software-defined data centers to replace the hardware-dominated model used by most companies.
"Just as we have done with computer virtualization, Nicira has done for the network space," said Steve Herrod, VMware's chief technical officer. "It advances the ability to define and configure networks on the fly."
VMware said it will acquire Nicira for $1.05 billion in cash and about $210 million of assumed unvested equity awards. The acquisition is expected to close in the second half of the year, VMware said.
Both companies are based in Palo Alto, Calif., and it is the third recent acquisition for VMware, which also acquired DynamicOps, a provider of cloud automation, and Wanova, which manages desktop virtualization.
"This wasn't a deal that was sitting on its own," said Constellation Research analyst Ray Wang. "There was some competition for it."
VMware is majority-owned by storage vendor EMC Corp. (>> EMC Corporation), which reports its earnings Tuesday. Last week, VMware confirmed that Pat Gelsinger, president and chief operating officer of EMC's information-infrastructure products segment, will become its chief executive on Sept. 1.
Meanwhile, VMware CEO Paul Maritz will move to EMC and take a job as its chief strategist, responsible for the company's technology strategy, with a focus on Big Data and the next generation of cloud-based applications.
For the second quarter, VMware reported a profit of $191.7 million, or 44 cents a share, down from $220.2 million, or 51 cents a share, a year earlier. Excluding stock-based compensation, tax adjustments and other items, per-share earnings rose to 68 cents, above the comparable year-ago figure of 55 cents and the 66 cents projected by analysts polled by Thomson Reuters.
Last week, VMware said its revenue grew a better-than-expected 22% to $1.123 billion. Both U.S. and international revenue grew 22%. International revenue made up 51% of total revenue for the period.
For the current quarter, VMware projected revenue of $1.11 billion to $1.15 billion. Analysts polled by Thomson Reuters had predicted revenue of $1.14 billion. The company affirmed its full-year revenue guidance, which it had raised last week.
-Nathalie Tadena and Drew Fitzgerald contributed to this report.
Write to Steven D. Jones at steve-d.jones@dowjones.com.
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