VMware’s $1.26 billion acquisition of Nicira Inc. is part of a strategy Gelsinger called the “software defined data center.” His goal is to supply tools that let businesses move to cloud computing by more readily shifting network capacity, storage, and processing power to applications that need it, he said in a keynote address today at the company’s VMWorld conference in San Francisco.
Gelsinger, who becomes CEO Sept. 1, is seeking to reignite growth and position VMware to gain a greater share of corporate technology spending by branching out into software that controls more parts of their data centers, including networking gear, according to Brent Thill, a UBS AG analyst. Software license sales will increase 13 percent to $2.1 billion this year, after climbing 31 percent in 2011, Thill said in an Aug. 22 report.
“If we look in the data center of today we see a museum of the past,” Gelsinger said. “It’s time to move on.”
The strategy may pose an increased competitive threat to Cisco, the largest maker of computer-networking gear, as it faces a new breed of software helping customers handle data traffic with fewer switches and routers. VMware and EMC Corp., its majority owner, are now competing more with Cisco in data- center management tools, three years after the three companies teamed up to sell combinations of networking equipment, storage, and VMware’s server-virtualization software.
“I don’t expect the tension to get resolved anytime soon,” said Frank Gillett, an analyst at Forrester Research.
VMware is the largest maker of virtualization tools, and buying Nicira gives it software for moving network capacity where it’s needed. Demand for cheaper ways to manage a rising flood of information over networks will propel software-related networking revenue to $17 billion worldwide by 2016, from $6 billion last year, according to Pacific Crest Securities. Oracle Corp. also pushed into the market with its July purchase of Xsigo Systems Inc.
A bundle of virtualization software called the vCloud Suite 5.1 will be available Sept. 11 in three editions priced starting at $4,995 per processor, VMware said today in a statement.
Gelsinger, who takes over from outgoing CEO Paul Maritz, had spent the last three years as chief operating officer at EMC. Prior to that, he had spent 30 years at chip maker Intel Corp. and ran the company’s business products division.
Maritz, a former Microsoft Corp. executive who joined EMC in 2008 and became VMware’s CEO that year, is returning to EMC as a technology strategist.
Microsoft, which offers competing virtualization software as part of its Windows Server product, plans to release a new version on Sept. 4.
Shares of VMware were little changed at $91.92 as of 1:02 p.m. in New York. The shares had gained 11 percent this year through Aug. 24.