Cisco buys out start-up Insieme, unveils its products


By Sinead Carew

NEW YORK, Nov 6 (Reuters) - Network equipment maker CiscoSystems Inc, looking to protect its core business fromnew competition, has bought out the remainder of itsmajority-owned data center technology start-up, Insieme, in adeal that could cost up to $863 million.

Cisco, which already owned 85 percent of Insieme, said itclosed the deal with its employees, and the final price would betied to sales targets for which it did not reveal details.

It also unveiled Insieme's first products, which are Cisco'sanswer to software defined networking (SDN) technology, agrowing trend among its rivals in developing software withfeatures that are typically found in high-end network hardware.

Because SDN technology can run on cheaper hardware thanCisco's expensive routers and switches, the network hardwareleader had to find a way to protect its equipment sales.

Chief Executive John Chambers, who discussed the products ata New York event, said Cisco's approach could save customersmoney and create a multibillion-dollar dollar business.

He told customers and technology partners that Insiemeproducts would, "reset the stage for IT for the next decade."

Rivals who have been gaining attention because of SDNinclude privately held Arista Networks, as well as VMware Inc, which created waves when it bought SDN start-up Nicirain 2012 for just over $1 billion. Juniper Networks Inc and Hewlett-Packard Co are also Cisco competitors in thesector.

Insieme was launched in early 2012 with a $100 millioninvestment from Cisco, followed by a $35 million round offunding in November 2012.

The start-up, which has 286 employees, was founded and isrun by longtime Cisco engineers Prem Jain, Mario Mazzola andLuca Cafiero, and is now the third start-up they have createdthat has been folded back into Cisco.

The products include the Nexus 9000 family of networkswitches, which is ready to be shipped to customers, and asoftware controller called the Cisco Application PolicyInfrastructure Controller (APIC), which will be available forsale in the first half of 2014.

The controller was designed to centralize data centermanagement for everything from network, storage and computingequipment to applications and security, and make rolling out newsoftware or making changes to existing applications much easier.

JP Morgan analyst Rod Hall said that, while Cisco'stechnology looks "solid," aggressive pricing could, "make ittough for the company to grow earnings in coming years."

RBC analyst Mark Sue said Cisco is trying to "turn the worldaround by making its system more flexible," which could be goodnews for its customers, but bad news for the industry overall.

But HP, which sells server computers that run SDNtechnology, responded to the news by criticizing Cisco'sstrategy. Dave Larson, HP's networking chief technology officer,said Cisco's offering, "locks customers into a proprietary Cisconetwork."

Cisco says that, by combining central management with itsown hardware, customers could see total cost-of-ownershipsavings of 75 percent, compared with software-only managementsystems.

Cisco also announced partnerships with key data centertechnology providers, including Microsoft Corp, IBMCorp and EMC Corp.

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