 From the SiliconANGLE Media Office in Boston, Massachusetts, it's the Cube. Hi, everyone. I'm Sam Cahane with Wikibon senior analyst, Stu Miniman. We have breaking analysis for you here today on the Cube. Yesterday, HPE acquired some plivity for $650 million. Today, we're going to cover, A, why HPE made this acquisition, B, how it's going to affect the ecosystem and customers, and C, who the winners and the losers are going to be. So, Stu, let's dig into it. What's the news here? Yeah, Sam, pretty exciting stuff. We've watched SimpliVity since they were basically in stealth. For those that don't know SimpliVity, they're a hyperconverged infrastructure company located right in Westboro, Massachusetts, which is in our backyard. Sam, right on the 495 loop, lots of storage talent here in Massachusetts, and HPE being still the leader in revenue for servers. Hyperconvergence is something that they have some offerings, but really felt that they needed to really energize what they were doing. So, buying one of the leading companies in the space, SimpliVity's got a track record, they've got a number of customers, they've got activity going on in the marketplace, so this will help accelerate HPE's activities here. Okay, and why is this so important? Why is hyperconverged infrastructure so important? It's such a hot topic right now. Yeah, so a few things, and it's a little bit of a complicated piece, we can't go into too much. David Floyer, our CTO, and myself have been writing about what we call server sand, and in many ways, we feel storage, as it traditionally was known, is changing forever, with things like Flash, distributed software architectures, what hyperscale players are doing. The traditional thing of just buying storage as a standalone piece is dying, so storage is part of the platforms and hyperconverged infrastructure is one of the ways if I'm building infrastructure to be able to do that. It's storage and compute and a little bit of networking, a lot of software, really to try to simplify what's happening in my environment. As a matter of fact, I mean, SimpliVity, you think about it, simplification is part of their name and their DNA and what they were trying to do for their customers, yeah. So I want to dig into the why. You know, HPE is the revenue leader in servers. Why do they need this? Why do they make this acquisition? Yeah, great question, Sam. So I mean, HPE has plenty of storage solutions. The one that we've tracked the most is, of course, 3PAR, which they bought back in 2010. It's been a great acquisition for HPE. Now HPE, I've seen some people saying in the marketplace, can SimpliVity do for HPE in this space what 3PAR did for them in storage. Hyperconvergence is growing very rapidly. We're tracking it at Wikibon. It's over $2 billion. Last year, it's growing at very high rates of growth, kind of 50 to 100% for most solutions out there. Dell EMC, if you look at Dell buying EMC, which of course was the largest acquisition in the technology space, hyperconverged infrastructure was one of the top reasons that Michael Dell wanted EMC. They had ownership of VMware, which is the vSAN product line. They had Scale.io, which they had acquired, and they have the VCE group, which has helped to package and build solutions out of what they were doing. So you've got this kind of three-headed monster out of the Dell Technologies family that is attacking hyperconverged very strongly. It's the vSAN stuff, it's the Scale.io stuff, and they're an OEM of Nutanix, who of course IPOed back in 2016. Hewlett Packard, to be able to combat that, really had some of their own solutions, which were legacy from the left-hand product line, really strong product for many years, but it was storage virtualization before that existed. It was a virtual storage appliance before that existed, and they would position it as hyperconverged before that existed, but it's a little tough to reposition some of the older technologies and make that change. So having a product that was purpose-built for hyperconverged puts HPE in that space. They also have their Synergy product line, which is a composable. They're partnering with Microsoft on Microsoft Azure, so there's a lot of solutions where SimpliVity can now come in and work with this. What's a little bit interesting is today, the SimpliVity solution works on Dell servers, works on Lenovo servers, works on Cisco servers. Today it doesn't actually work on the HPE ProLiant servers, but by the time this deal closes in April, they've said it will be there, and then there will be over time just SimpliVity software integrated more and more into a broader set of HP offerings. So could this space be overhyped a little bit? So Nutanix is valued at over $4 billion, and then SimpliVity just sold for 650 million. What are your thoughts? Could it be overhyped? So at Wikibon, Sam, we always said that there's this wave that's coming, and it's not about hyperconvergence. Hyperconvergence is an interesting term. There's some interesting things happening there, but it's really about building distributed architectures, and some of these new components, like how Flash is really changing architectures, how new applications are being built. So look at what the cloud guys, Amazon, Microsoft, and Google are doing. Nutanix reached escape velocity, they IPO, they're doing well, they're still over $4 billion of market, even after a little bit of a hit this morning after SimpliVity getting bought for only 650 million. Look, I want to say, congratulations to the folks at SimpliVity. Know a lot of hard work went into this. They got about 2x of the VC money that they raised in the acquisition, and the multiple of revenue is somewhere in the three to four range. We haven't finished our kind of 2016 revenue looking at everything from 2015. SimpliVity had done about 95 million, and that's, they're starting to see more and more shift of what they were selling to be. Software only means that they weren't bundling in the hardware as part of it. So it's definitely a growth market, definitely something that, if you look at HPE's reach with their customer base, talked about all their servers that they have, they've got strong storage expertise out there, and their channel and their go-to market, they should be able to accelerate this and get this into a lot of customers here in 2017. Okay, so from speaking of the customers, how are they going to be affected, you know? And how is the ecosystem going to be affected as well? Yeah, so there is definitely, if I'm today a SimpliVity customer, HPE's given the assurance, we're not changing the platforms, we're not changing everything. However, we know that they're going to port this software over to the HPE ProLiant servers. What does that mean? If I'm today looking at buying, say, a Lenovo server or a Cisco server or a Dell server and running SimpliVity, do I really want to sign up for that when I know later this year, next year, the strong push is going to be on the HPE ProLiant. So I'd love to see HPE come out and say, hey, we're strongly committed to software and this ecosystem and growing it. I tend to think that they will focus more on offering the full stack and that while there's great opportunity for them to bring SimpliVity into a larger part of the market, that can shut them out of some of those opportunities in the other server manufacturers where VMware, where they're vSAN, Nutanix, with their software are gaining a lot of traction. So it'll be an interesting transition year here in 2017, but overall it's good to see HPE putting money, putting focus on this space. We already saw Dell's there, Lenovo's there, Cisco, I think we'll talk a little bit more later. We'd love to see more as to how they're focusing on this space. Yeah, let's talk about it. Winners, losers, what's your take? Yeah, so Nutanix, as long as the market doesn't feel that there's not enough opportunity here with SimpliVity only getting $650 million, what does this mean overall? I was talking to John Furrier, of course our anchor out on the West Coast for Silicon Angle in their Silicon Valley Fridays. They've been talking about a lot of the VC money has been pulling out of the infrastructure business. The big guys are doing well, the cloud guys are threatening, applications are taking a lot of that money. So with SimpliVity only going for 650 million, it's not great for infrastructure companies that are looking for investment, looking to grow in this space. There are a few startups in the hyperconverged infrastructure space that are still out there. Look at like Maxta, Diamante, Springpath at Cisco OEMs, Stratoscale, which also has investment from Cisco, but it's out there. There's a handful of other companies out there. It's not great swimming for them out there. Customers are looking for new and interesting things out there, but the investment kind of marketplace isn't great for them out there. And there's not too many companies that could buy companies out there. Cisco's one, they've got an OEM relationship with Springpath with their HyperFlex software. If that goes well, it would be expected that Cisco would buy that. But today, Cisco has lots of storage partnerships and it's not a strong relationship with Nutanix. As a matter of fact, Cisco kind of pushes Nutanix away even though Nutanix works on the Cisco UCS. So I think it's kind of a mixed bag for the infrastructure players and for customers. It shows that this marketplace just is maturing so fast. Talk about kind of the explosion and discussion of hyperconverged. There's a little bit of grounding as we see consolidation, which we've been seeing in the infrastructure space for many years now, just more and more consolidation. Did you see this acquisition coming? Did you expect this to happen? So it was not surprising to see this acquisition. I think two years ago was the first rumor that we heard that HP, back when it was actually HP, was gonna buy SimpliVity. The rumors of the numbers, it had been said that the CEO, Doron Campbell, was looking for $2 to $3 billion. There are many that said if he had been offered that $2 to $3 billion two years ago when he turned it down, well, you missed a great opportunity there because they only sold for $650 million. So it doesn't surprise me that SimpliVity sold. There's a lot of pressure in the marketplace right now. Nutanix now out as an IPO in the public markets, still growing and doing well. VMware coming on very strong in this space, especially through the Dell Technologies partnership in VxRail has been doing very well so far. Cisco is tough to partner with in this space and especially with the OEM relationship. It was one of the largest areas of growth for SimpliVity and if Cisco spent more effort on things like HyperFlex, it would be less opportunity for them. So the options are could SimpliVity reach IPO? Revenue numbers were trending towards getting to an IPO. Don't know if that would have happened in 2017, but as we often see, when a company starts to think about an IPO, that's often the time that somebody swopes in and buys them. We saw EMC bought VirtuStream when they were looking at that kind of activity. There were plenty of rumors that Nutanix might get bought up, even rumors that HPE might have bought Nutanix. But the market cap that they had obviously, if they could buy SimpliVity for $650 million rather than over $4 billion for Nutanix, it is a much more reasonable shot and HPE believes that they have the internal resources, the go-to-market reach to be able to take that and push it. So was it really a surprise? I hope it turns out well for all those involved. So last question for you, what else do people need to know about this acquisition? Yeah, so I think in many ways, Sam, I believe that we'll spend less time talking about hyper-converged infrastructure now. If you look, Nutanix really talks about Enterprise Cloud. Really like that messaging. We've been talking about, do companies need a convergence strategy? No, do they need a cloud strategy? Absolutely. What am I turning into SaaS? What am I putting in the public cloud? What am I keeping in my environment? We've been saying for years, companies should stop building data centers and let you re-eat. So companies like Equinex, the large service providers, hosters like Rackspace and the public cloud is a good place to live it. Infrastructure is changing rapidly. That's why Dell Bought EMC, that's why HP is trimming down to really focus on their knitting. So rapid changing in the infrastructure marketplace, it's definitely opportunities for customers to rethink how they're doing things and make sure that they've got their strategies in order so that they'll be ready to be more agile, faster and be able to stay more competitive. Stu, thank you. For more information on this acquisition, go to siliconangle.com. This has been Breaking Analysis. Thank you for watching theCUBE.