* Says to buy Nicira for about $1.05 bln
* Acquisition to close in second half 2012
* Says Q2 EPS is 68 cts versus Street view of 66 cts
* Sees Q3 revenue $1.11 bln to $1.15 bln
* Stock down 3.7 pct after hours
By Nicola Leske
July 23 Software maker VMware Inc said
it will acquire privately held Nicira Inc for $1.05 billion in
cash to expand its portfolio and establish a leading position in
The deal, which is VMware's biggest acquisition to date,
includes $210 million of assumed unvested equity awards and is
expected to close in the second half of 2012.
Nicira, a startup founded in 2007, sells software that lets
customers create virtual networks that can operate independently
of underlying physical networks in what is called
The company has raised $50 million from venture capital
firms Andreessen-Horowitz, Lightspeed and NEA. Diane Greene,
co-founder and former CEO of VMware, has also invested in
Ben Horowitz said his firm was Nicira's largest shareholder
with an investment of $17.7 million and will be paid in cash for
"VMware is probably the ideal fit," Horowitz said, adding
that there had been plenty of interest in Nicira, which had
driven up the price. "Still, in retrospect I think the deal will
look cheap," Horowitz said.
The networking market has an overall value of about $37
billion and software-defined networking accounts for only a tiny
part of that total. According to research firm IDC software,
defined networking will grow to $2 billion by 2016 from $200
million in 2013.
VMware Chief Executive Paul Maritz said, "This acquisition
was made because of its strategic value as opposed to its
current revenue value."
VMware pioneered server virtualization and now it is poised
to the same with virtual networks, said Maritz, who will be
succeeded by Chief Operating Officer Pat Gelsinger on Sept 1.
"We see similar forces at work here as we move towards the
software-defined data center and we saw tremendous strategic
value in being able to claim a position of leadership ...," he
In a report on Nicira, ISI group analyst Brian Marshall has
said that "they should be able to work with VMware."
"VMware isn't doing anything similar but would naturally be
interested in the market due to the potential value unlocked by
network virtualization," Marshall said in April.
He added that Nicira could create tens of thousands of
virtual networks and would eventually be able to support more
than 100,000 virtual networks.
Nicira counts AT&T, eBay and Fidelity investments among its
VMware also reported second-quarter earnings of $296
million, or 68 cents per share, excluding items, compared with
$235 million, or 55 cents a share, a year earlier. The 68 cents
exceeded the 66 cents a share expected on average by analysts,
according to Thomson Reuters I/B/E/S.
The company reported last week that second-quarter revenue
rose 22 percent from a year earlier to $1.12 billion and that it
expects full-year revenue of $4.54 billion to $4.64 billion.
It said it aims to reach revenue of $1.11 billion to $1.15
billion in the third quarter. Analysts on average are expecting
VMware had previously forecast sequentially flat revenue in
its third quarter but in light of uncertainty over macro
conditions in Europe and weaker government spending had lowered
its expectations for the third quarter.
Nevertheless, Maritz promised investors that the company's
pipeline was strong and that he was confident customers would
have excess money to spend at the end of the year making for a
strong fourth quarter.
Despite his optimism VMware stock was down 3.7 percent at
$86 in after hours trading.