NEW YORK (Reuters) - Network equipment maker Cisco Systems Inc said on Wednesday it will buy out its majority-owned data center technology start-up Insieme for a maximum cost of $863 million as it looks to protect its core business from new competition.
Cisco, which already owns 85 percent of Insieme, also unveiled the start-up's first products. They are Cisco's answer to software defined networking (SDN) technology, a growing trend among its rivals in developing software with features that are typically found in high-end network hardware.
Because SDN technology can run on cheaper hardware than Cisco's expensive routers and switches, the network hardware leader needed to find a way to protect its equipment sales.
Rivals who have been gaining attention in SDN include privately held Arista Networks as well as VMware Inc, which created waves in the industry when it bought SDN start-up Nicira in 2012 for just over $1 billion. Juniper Networks Inc and Hewlett-Packard Co are also Cisco competitors in the sector.
With this in mind, Insieme was launched in early 2012 with a $100 million investment from Cisco, followed by a $35 million round of funding in November 2012.
The start-up is run by longtime Cisco engineers Prem Jain, Mario Mazzola and Luca Cafiero and is now the third start-up they have created to be folded back into Cisco.
The Insieme products are being unveiled by Cisco Chief Executive John Chambers at a New York event on Wednesday.
The products include the Nexus 9000 family of network switches and a software controller it is calling the Cisco Application Policy Infrastructure Controller (APIC).
The controller was designed to centralize data center management for everything from network, storage and computing equipment to applications and security.
By combining central management with its own hardware, Cisco is promising total cost-of-ownership savings of 75 percent, compared with software-only management systems.
Reporting by Sinead Carew; Additional reporting by Nicola Leske; Editing by Jeffrey Benkoe