Hewlett Packard Enterprise may be poised to buy SimpliVity -- the Westborough, Mass.-based second-ranked hyperconvergence infrastructure (HCI) vendor -- for $3.8 billion to $3.9 billion, according to The Register.
HPE did not comment but CEO Doron Kempel shed some light on SimpliVity's latest quarter while also declining to comment on the acquisition report.
HPE's rumored price would roughly quadruple the $1 billion valuation SimpliVity garnered when it last raised capital -- $175 million -- in March 2015.
HPE's rumored buy marks a step forward after years of cutting back to what it hopes is a profitable core. HP tried to buy EMC in 2014/2015 but could not agree on a price so Dell stepped in -- after which HP was split between the PC/printers operation for consumers and HPE -- which is focusing on selling hardware to enterprises.
HPE was formed about a year ago and is still shrinking thanks to two spinoffs that will leave the company focused on server systems, networking and storage devices, according to Dow Jones.
The spinoffs -- its 100,000 employee computer services business will merge with Computer Sciences Corp and most of its 12,000-employee software operations will merge with Britain's Micro Focus International -- will leave HPE with less revenue and big one-time charges.
Meanwhile CEO Meg Whitman expects slight revenue growth in 2017. Indeed, Dow Jones reports that HPE's executives believe that those remaining businesses are doing well and benefiting from greater attention from top management and the company's sales force.
If HPE is able to close a deal for SimpliVity it would signal confidence by HPE's executives and board after its disastrous Autonomy acquisition -- signaling a shift to using cash for building rather than paying severance to "tens of thousands of staff that have lost their job in the last four years as the company cut its cloth to offset leaner demand," according to The Register.
HPE is already a participant in the HCI industry which combines as many as a dozen data storage and retrieval functions into a single appliance that uses a relatively inexpensive server to run customized software. IDC Research recently reported that the industry grew 137.5% to generate about $481 million in revenue in the second quarter of 2016.
Moreover, SimpliVity was growing faster — 110.7% — than market leader Nutanix’s 77.4%, according to Gartner Group’s August 15 report, “Market Share Analysis: Data Center Hardware Integrated Systems Worldwide: 2015.”
Kempel said in a November 10 interview, "Regarding the most recent wave of rumors — as you can appreciate, our standard response to all inquiries is that SimpliVity does not comment on rumors or speculation."
He was happy to reveal a strong third quarter for SimpliVity along with progress in making its product available on many hardware platforms.
In the not yet announced third quarter of 2016, he said, "Results were very good. Significant growth relative to Q2 and year over year; record software sales exceeding 70% of total sales."
Kempel says that SimpliVity's third quarter featured "much larger deals including noteworthy Red Bull Racing's Formula One team that is standardizing on SimpliVity after seeing 2x performance outcomes relative to the other HCI competitors. We closed a mega government cloud project, a large Telco cloud project, and maintained a very high win ratio – in the 80% range again -- despite attempts by competition to discount inferior HCI and/or bundle legacy gear."
Kempel believes that companies are accepting HCI and the value of SimpliVity's brand. As he explained, "The market is recognizing and embracing SimpliVity’s unique, superior and profoundly valuable data services platform. We have increased traction globally with Lenovo, Cisco and Dell, and foresee a world where SimpliVity OmniStack is qualified to run on all x86 servers. Expect to see additional announcement regarding expand x86 platform support later this quarter. We have a very strong pipeline and are focused on building a great business."
SimpliVity was looking for another round of funding in October and preparing for an IPO -- but an HPE buy would give SimpliVity investors a good return -- valuing it above Nutanix's $3.7 billion as of November 10 -- and possibly strengthening SimpliVity's sales once HPE's sales force is up to speed with how to sell it and has a compelling financial incentive to do so.
Nutanix -- which reported a $168 million loss on $445 million in revenue for the fiscal year ending July 2016-- is trading about 39% below its post-IPO peak. Perhaps this weak performance is making private investors reluctant to place another big bet on the fast-growing but price-competitive HCI industry's number two player.
If that is true, an acquisition by HPE might be a good outcome for SimpliVity's investors -- though something of a disappointment for Kempel who has been telling me for years that he wants to take the company public.
Or perhaps the HPE story is nothing more than a rumor -- in which case he may one day achieve that cherished goal.
