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Cisco Systems Completes Springpath Acquisition, Eyes NetApp

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Cisco Systems Inc (CSCO - Free Report) recently completed the earlier announced acquisition of Sunnyvale-based start-up, Springpath, for $320 million in cash. The company is speculated to show interest in NetApp Inc (NTAP - Free Report) .

Springpath Strengthens Competitive Position

Springpath is well known for its distributed file system for hyperconvergence that enables server-based storage systems. The companies collaborated in early 2016 to launch HyperFlex, the industry’s first fully-integrated hyperconverged infrastructure system (“HCI”).

HyperFlex combined Cisco’s Unified Computing System ("UCS") blade servers with Springpath’s software at core. According to research firm IDC, the HCI market is anticipated to be a $6-billion opportunity by 2020.

We believe that the acquisition will boost Cisco’s competitive position in the HCI market particularly against Nutanix (NTNX - Free Report) . The company believes HyperFlex to be a better system as compared with Nutanix and others to address the challenges related to networking and performance of the HCI systems.

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The product gained strong traction with Cisco attracting almost 1800 customers last year.

NetApp: Next Target?

Cisco is now speculated to show interest in Sunnyvale, CA-based NetApp, per Barron, which quoted Summit Redstone analyst, Srini Nandury.

According to channel checks, the analyst noted that Cisco is likely to acquire NetApp (market capital of $11.04 billion) instead of flash-storage provider Pure Storage. Per the analyst, the deal will boost Cisco’s competitive position in the data center market against the likes of Hewlett Packard Enterprise (HPE - Free Report) .

We note that in accordance to its software-centric approach, Cisco has completed a plethora of acquisitions in the software space over the last couple of years. The list included bigwigs like Internet of Things (IoT) cloud service provider Jasper Technologies (for $1.4 billion in 2016) and app performance management software provider AppDynamics (for $3.7 billion in 2017).

However, the company has been a laggard in the storage space prior to Springpath. Cisco’s last notable storage acquisition was solid-state memory systems provider WHIPTAIL, way back in 2013. But the acquisition failed to deliver and the company closed down Invicta Storage business (that it got from WHIPTAIL) in 2015.

NetApp: A Long time Partner

Cisco has been dependent on partners like NetApp and Dell-EMC for storage needs in the data center market. Its relationship with NetApp dates back to 2003. The company is currently a Cisco Original Storage Manufacturer (“OSM”).

In June, Cisco-NetApp expanded product offerings by launching FlexPod SF solution, which includes NetApp SolidFire all-flash, scale-out, cloud-connected storage, Cisco UCS B-Series servers and Cisco Nexus switching.

Conclusion

NetApp can be an ideal acquisition candidate for Cisco due to their long running relationship. The company will be easy to integrate into Cisco’s existing business line-up and also accretive immediately as noted by the Summit Redstone analyst, Srini Nandury.

However, apart from NetApp there are few other storage companies that can interest Cisco. We believe that Reduxio Systems, Nimbus Data, Qumulo are the noticeable ones.

Reduxio secured $22.5 million of funding in an investment round in March, this year. Per Reuters, C5 Capital was the lead investor. Jerusalem Venture Partners, Carmel Ventures, Intel Capital and Seagate Technology also participated in this round.

Per TechCrunch, Seattle-based Qumulo raised $40-million Series B investment in 2015.

Currently, Cisco has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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