Cisco acquires Springpath for $320M, bolstering software-defined data center strategy

merger and acquisition

Cisco has reached an agreement to acquire hyperconvergence software developer Springpath for $320 million in cash, reflecting the vendor’s ongoing movement to transform itself into a software-centric company.  

By acquiring Springpath, Cisco will gain a distributed file system to better manage its server-based storage systems.

“The acquisition of Springpath is strategic to our Data Center portfolio as we transition to delivering software-centric solutions to our customers,” said Liz Centoni, SVP and general manager of Cisco Computing Systems product group, in a blog post.

RELATED: Cisco continues software transition, but slow service provider spending, switching impacts Q4 results

After meeting customary closing conditions and clearing regulatory reviews, Cisco expects the acquisition to close by the end of October. The $320 million purchase price includes assumed equity awards plus additional retention-based incentives.

Neither company is a stranger to one another. The purchase follows a longstanding strategic relationship between the companies culminating in the launch of HyperFlex, a fully integrated hyperconverged infrastructure system, early last year.

Cisco first worked with Springpath's management in 2012, and in 2015 the company led Springpath's series C financing round. By combining Springpath's software with the Cisco Unified Computing System, Cisco launched its Hyperflex platform in 2016, which has attracted over 1,800 customers in the past year.

Cisco said the takeover will help it grow in software-defined systems for data centers. Hyperconverged infrastructure, a software-based system combining compute, storage, networking and virtualization systems in a single platform, is the fastest growing segment of the data center market, Cisco said.

Data center continues to be a hot button for Cisco. The company’s fiscal fourth-quarter data center revenue was $837 million, up 4%, topping analysts' estimates and helping overall revenue meet expectations.

Analysts agreed with Cisco’s software focus.

“Cisco is continuing to acquire software-centric companies that can aid in its transition from a hardware-focused firm to a more balanced software and hardware provider of complete solutions to enterprises operating in or transitioning to the cloud, whether in public, hybrid or on-premises/private environments,” said Donovan Jones, CEO of VentureDeal.com, in a Seeking Alpha article. This transition away from increasingly commoditized hardware is a major business model shift for Cisco, as it moves toward a software-centric solutions enterprise model.

Cisco reported in its fiscal fourth-quarter results that it generated 31% of its total revenue from recurring offers, an increase of almost four points from a year ago. Revenue from subscriptions increased 18% and now represents over 50% of the vendor’s software revenue.

However compelling this transition will be for Cisco over time, the vendor’s legacy switching and router business remains challenged amid weaker service provider spending. Switching revenues declined 9% during the quarter, for example.