Shares of VMware Inc. (VMW: Charts, News) closed down -0.34 or -0.38 percent on Tuesday to $88.89 per share, after the company announced late Monday they would be acquiring networking startup Nicira Networks for $1.26 billion in cash and stock. The move will give VMware a solid entrance into software defined networking, which allows networking functions to be run by one central program on a standard type of server instead of having to run on a more expensive networking system.
Also, VMware reported its second quarter earnings, which came to $0.52 per share, beating the consensus of analysts polled by Zacks Equity Research by 4 cents per share. Non-GAAP earnings rose to 68 cents per share compared to 55 cents in the same quarter one year ago.
Palo Alto, CA based VMware Inc. was founded in 1998 and acquired by EMC Corporation (EMC: Charts, News) in 2004 who still owns a controlling interest in the company. The company specializes in the manufacture of a variety of software products and pioneered a technology known as virtualization, which allows businesses to launch their software on server systems without having to assign one program for each machine.
The Nicira acquisition comes just one week after the closing of VMware’s takeover of DynamicOps Inc, a provider of cloud computing automation solutions that enable the management of IT services across heterogeneous environments.
VMware CEO Paul Maritz will move to parent company EMC in September, while Pat Gelsinger, a top executive at EMC will begin as CEO of VMware. After the earnings release, CEO Maritz referred to the DynamicOps takeover stating, “This technology allows us to broaden our cloud infrastructure management and enables service requests to be provisioned across not only vCloud and vSphere, but across heterogeneous clouds and physical infrastructure. Dynamic Ops is already in use at many of our largest customers, and we look forward to extending its appeal and use.”
About the Nicira takeover, Maritz stated, “Our strategy is to be the leader in providing the software ingredients of the software-defined data center. The whole data center industry is in the midst of a transition towards an architecture comprised largely of standardized hardware building blocks that run under the control of layers of software. This approach provides a significant advance in terms of data center automation, increasing not only scale and efficiency, but agility too. One just has to look inside the data centers of the leading public cloud services to see this beginning to play out.”
While the two acquisitions will require a substantial amount of cash and stock on VMware’s part, the consolidation of technology which the acquisitions represent will most likely keep VMware at the forefront of advances in virtualization and the move to cloud technology. Nicira will give VMware the capability of providing virtual network functionality to VMware’s vCloud and vSphere software.
Despite VMware’s stock dropping somewhat after the announcements, the stock is well off of its 2012 high of $118.79 per share and could be under accumulation, having traded as low as $80.00 per share on July 17th. With increasing earnings and the acquisition of additional technology through the takeovers, VMware stock is definitely one to watch.
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