Server and desktop virtualisation player VMware announced last night it is to pay $1.26bn for network virtualisation firm Nicira.
VMware also reported a 13% drop in its second-quarter earnings, although the performance still beat analysts' estimates.
Founded in 1998, VMware has come to dominate the server virtualisation space, with technology that enables a single server to appear as many, helping to drive up utilisation rates of servers, reduce the power and cooling needed in the server estate and ultimately, save money.
Nicira is a five-year-old company that makes virtualisation software for computers working within the same corporate or government network. The company in just February this year unveiled its Network Virtualization Platform (NVP), which is a software-based system that creates a distributed virtual network infrastructure in cloud data centres that is completely decoupled and independent from physical network hardware.
AT&T, eBay, Fidelity Investments, NTT and Rackspace have already deployed the NVP and are realising service delivery acceleration by reducing time and resources in data centres, according to Nicira.
VMware will pay $1.05bn in cash, plus assume responsibility for $210m in stock awards that Nicira had given its employees. Privately held Nicira had raised about $50m from a list of early investors that includes venture capital firms Andreessen Horowitz, Lightspeed Venture Partners and New Enterprise Associates.
Both companies are based in Palo Alto, California.
VMware earned $191.7m, or 44 cents per share, during the three months ending in June. That compared to net income of $220.2m, or 51 cents per share, at the same time last year. Revenue for the period climbed 22% from last year to $1.12bn to match analyst projections.
VMware recently announced its CEO of the past four years, Paul Maritz, will be replaced by Pat Gelsinger in September. Gelsinger has been an executive at EMC, the data storage equipment maker than owns a controlling stake in VMware.
VMware's shares fell $3.53, or 4%, to $85.70 in Monday's extended trading after the Nicira deal was announced.