Cisco might be preparing to make another move into the fast-growing hyper-converged systems market.
The networking company has signed an agreement to build hyper-converged hardware using Springpath Inc. software, according to media reports this week. An announcement could come as early as next week.
Cisco declined comment.
Cisco's hyper-converged hardware would combine its Unified Computing System (UCS) server with storage and networking in a data center appliance that includes a single infrastructure software management layer. A hyper-converged system delivers less operational complexity than a standard converged system by integrating storage and computing into a single unit.
Springpath, based in Sunnyvale, Calif., is one of a number of startups providing infrastructure software used to create hyper-converged systems in x86 hardware. Others include Nutanix and SimpliVity.
The overall converged systems market is growing, driven primarily by sales of hyper-converged systems, according to the latest figures from research firm IDC. The global converged systems market grew more than 6% in the third quarter of 2015 to $2.5 billion. Revenue from hyper-converged systems, a subset of the overall market, soared by more than 155% in the quarter to $278.8 million.
Springpath acquisition possible
A Springpath deal would be in line with Cisco's preference to partner with companies as a quicker way to get products to market by avoiding the complexity of an acquisition, said John Fruehe, an analyst at Moor Insights & Strategy, based in Austin, Texas.
I am in the same camp with the rest of the market that if this works well, Cisco will purchase Springpath.
John Frueheanalyst at Moor Insights & Strategy
"I am in the same camp with the rest of the market that if this works well, Cisco will purchase Springpath," Fruehe said. "Cisco can work with them, and if they find good success, they can move forward with an acquisition versus making the deal now and risking it not working out."
Cisco has demonstrated a preference for partnerships over large acquisitions. In November, the company announced a broad alliance with telecom equipment maker Ericsson. Analysts said at the time that the deal fell just short of a merger in terms of cooperation between the two companies.
"When you combine this [Springpath] with the Cisco-Ericsson deal from last November, this is looking like the old Cisco strategy of 'buy everything and figure out how to integrate it' is moving to partnering," Fruehe said. "This [a partnership] is less intrusive to the business and affords you a faster time to market."
From a technical perspective, Springpath would be beneficial to Cisco, said Dan Conde, an analyst at Enterprise Strategy Group in Milford, Mass.
"Cisco UCS does currently support a wide variety of storage systems, but Springpath probably will help create a unified view that takes pools of hardware resources -- both storage and compute -- and presents it in a unified view," Conde said.
Failed Nutanix acquisition
Cisco reportedly planned to enter the hyper-converged hardware market last year through an acquisition of Nutanix, which led other startups in terms of valuation. Based on a $140 million round of funding last August, the company had a valuation of more than $2 billion.
The acquisition never took place, but industry observers said Cisco was unlikely to cede the market for long to rivals Hewlett Packard Enterprise, VMware and the latter's parent company, EMC.
Cisco's entry into the converged systems market occurred in 2009 through a partnership with VMware and EMC. The product line, called the Virtual Computing Environment (VCE), was a bundle of virtualization, networking and storage to help enterprises build private clouds.
However, increasing competition among Cisco and the other two companies led to EMC in 2014 buying out all but 10% of Cisco's stake in VCE, essentially making the alliance an EMC business. In 2014, VCE generated $2 billion in revenue, but lost $357 million.
This week, EMC announced that VCE would become the company's Converged Platforms Division and appointed Chad Sakac as president of the business. Sakac, who ran EMC's Global Systems Engineering operations for the last three years, succeeds Praveen Akkiraju. Akkiraju has led VCE since 2012.
EMC is in the process of selling itself to computer-maker Dell in a deal valued at $67 billion. The transaction is expected to close this year.
