Sources: Cisco Close To Making Bid To Buy Springpath

Cisco Systems, which owns an undisclosed stake in hyper-converged provider Springpath, is getting closer to making a deal to acquire the startup whose technology is used in Cisco's HyperFlex Systems, sources told CRN.

The networking giant is looking at the valuation of the Sunnyvale, Calif.-based startup, with an eye toward making an offer in the fall, according to several sources close to the company.

"Both sides are basically ready for this, where that really wasn't the case in the past when Cisco was looking at the [hyper-converged] market," said one source familiar with the situation, who declined to be named.

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Cisco declined to comment on the potential acquisition of Springpath. Springpath did not respond to multiple requests for comment.

When Cisco took the wraps off its strategic partnership with Springpath and new HyperFlex solution in March, sources told CRN that Cisco has the option to acquire Springpath based on sales results.

Cisco has also been working with Springpath since it was founded in 2012. The networking giant led a Series C round of funding in Springpath last year for an undisclosed amount.

’They have got to do something in hyper-converged,’ said one source, who did not want to be identified, with knowledge of the strategic ties between Cisco and Springpath.

Cisco previously tried to acquire hyper-converged superstars Nutanix and SimpliVity, but negotiations ultimately failed.

The San Jose, Calif.-based network leader, in fact, made two separate bids to acquire Nutanix, but Cisco's best offer was around $4 billion compared to Nutanix's asking price of around $6 billion to $7 billion, according to sources.

Springpath is shifting to become a Cisco-only OEM development company, with less focus now on other selling and marketing activities, according to a report from The Register. The startup has technology partnerships with Dell, Docker and VMware.

Founded by former VMware storage engineers, Springpath owns a software-defined storage technology called HX Data Platform, which runs on Cisco UCS servers to create HyperFlex. The platform pools storage from solid-state and conventional hard drives and turns it into an enterprise-grade object storage system.

In an interview with CRN in May, Cisco CEO Chuck Robbins said his company was already seeing success with the Springpath alliance. "The way we measure success on these early technologies is through the number of customers that have adopted the technology … the [HyperFlex] pipeline is strong. The early feedback that I'm getting from the field teams is positive," said Robbins.

One potential hurdle standing in Cisco’s way is an impending lawsuit filed in September 2015 against Springpath by hyper-converged competitor SimpliVity.

Westborough, Mass.-based SimpliVity – which also has a strategic partnership with Cisco -- alleges that Springpath infringed on SimpliVity's storage-related technology patent when Springpath created its software-defined storage Data Platform product. The platform is Springpath’s key product inside Cisco’s HyperFlex hyper-converged solution.

According to a judgement by the Massachusetts District Court, if SimpliVity wins the case, the company could be awarded damages and potentially ban Springpath’s Data Platform product from being sold due to infringement technology. Springpath’s motion to dismiss the patent infringement claim was denied on July 15 by Massachusetts District Judge Timothy S. Hillman.

’Cisco obviously knew of the lawsuit before they announced to the world that they had partnered with [Springpath] for HyperFlex,’ said the source familiar with the situation. ’They probably thought it was going to be resolved by now or hopefully thrown out. ... There are workarounds for these types of things, so Cisco is still preparing to buy them.’

’Springpath could build [Data Platform] 2.0 with non-infringing and designs to go around whatever [the court] orders,’ the source said.

Since its general release in March, "hundreds of customers" have purchased Cisco HyperFlex, said Liz Centoni, senior vice president and general manager of Cisco's Computing Systems Group, at Cisco Live this month.

In April, Cisco told CRN strong market demand for HyperFlex was delaying shipments of the product to channel partners for testing purposes.

"They want to [utilize] more of Springpath's technology sooner rather than later," said the source. "If you've been watching the [hyper-converged vendor] landscape this year, it's ballooned compared to a year or two ago. … They've waited for the right moment when the market is ready to buy them and now they're ready."

At Cisco Live in Las Vegas this month, HyperFlex was a hot topic among attendees.

"The HyperFlex session was one of the only sessions where I had to stand because there weren't enough seats and Cisco Live is a pretty big customer-centric event," said Robert Keblusek, chief technology officer of Downers Grove, Ill.-based Sentinel Technologies, a Cisco Gold partner ranked No. 131 on the 2016 CRN Solution Provider 500. "Hyper-converged is really, really hot and Cisco seems fully committed to HyperFlex."

In an email to CRN, Cisco said HyperFlex is now being added to Cisco's "learning curriculum," meaning there will be more technical sessions and self-paced labs around HyperFlex at future Cisco Live events.

HyperFlex is included in many of Cisco's channel incentive programs, including the Value Incentive Program (VIP) and Opportunity Incentive Program (OIP). Cisco's field sales teams are also working channel with partners to sell HyperFlex, according to Cisco.