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More Virtualization Platform Acquisitions to Come? Listen to What the 451 Group Says.

Many of us believe that the virtualization market is going to start consolidating down and that the larger vendors are going to start gobbling up some of the smaller players (those that have been around for a while all the way down to some of the stealth companies just coming out).  With the technology taking off like it has (hey, some of us have been saying the technology is taking off for years... welcome to the party), many of the holes and troubled areas of virtualization are being addressed by many third-party companies.  And I think these companies are ripe for acquisition so that the big platform vendors can address those holes quickly and easily, rather than trying to address it themselves... leaving them to concentrate on other areas. 

The 451 Group recently looked at the remaining hypervisor technology out there and asked and answered themselves as to who might be acquired next and by whom. 

Potential targets

Wholly owned by SWsoft, Parallels isn't looking for and doesn't need another sugar daddy. On the contrary, the companies are planning splashy spoiler announcements for VMware's annual party, VMworld, starting September 11 in San Francisco. Parallels will announce Parallels Server for Mac, its first non-desktop product, designed to piggyback off the success of Apple's (Nasdaq: APPL) Xserve machines just as Parallels Desktop profited from Apple's move to the x86 microprocessor. At the same time, parent company SWsoft is poised to announce Virtuozzo 4.

SWsoft's virtualization technology, as embodied in Virtuozzo, requires an operating system host, but Parallels – like VMware ESX and the Xen open source hypervisor – runs on bare metal. There are performance advantages to the hosted approach and manageability advantages to the bare-metal hypervisor. The important thing is that SWsoft, a formidable player in hosted virtualization, now has a bare-metal server virtualization engine of its own. This might make it a compelling acquisition target – if it needed a sugar daddy; but as we've discussed, it doesn't. SWsoft boasts that its software is installed on 130,000 servers and 600,000 desktops in 160 countries. The company is actually more likely to file an IPO of its own and buy up related vendors. Again, let's come back to that.

Qumranet is a different kettle of fish, a far smaller company than SWsoft. Unlike SWsoft it is venture-backed: Sequoia Capital and Norwest Venture Partners have taken stakes. Cofounders Benny Schnaider, Rami Tamir and Giora Yaron are Cisco Systems veterans, having worked together at Pentacom before it was sold to Cisco in 2000; CTO Moshe Bar hails from XenSource and Qlusters, the sponsor of openQRM. Qumranet is the creator, maintainer and sponsor of the KVM Open Source Project, the main open source rival to the Xen hypervisor. Qumranet is still in stealth mode, but it's planning to unveil its commercial offerings any day now to an extremely attentive audience.

Virtual Iron Version 4 is also slated for a VMworld release. While it's functionally equivalent, more or less, to VMware Infrastructure 3 (VI3), the Virtual Iron software uses the Xen open source hypervisor, so it competes directly with XenEnterprise 4. Virtual Iron Version 4 integrates Novell's (Nasdaq: NOVL) SUSE Linux Enterprise Server 10 kernel and drivers, LiveConvert for P2V and V2V from PlateSpin, a new graphical management interface, support for the new Xen 3.1 64-bit hypervisor, and extra support for operating systems and for Windows SMP.

Founded in 2003, Virtual Iron is backed by Highland Capital Partners, Matrix Partners, Goldman Sachs (NYSE: GS), Intel Capital (Nasdaq: INTC) and SAP Ventures. Its backers, like those of Qumranet, would love to see the kind of return XenSource investors achieved through the sale to Citrix – something in excess of 150 times projected 2007 sales.

What Virtual Iron lacks, however, is the development team responsible for the open source component. Qumranet has its KVM team on staff. XenSource had the Xen team, plus another huge advantage: a June 2006 deal with Microsoft that gave the Xen engineers access to Viridian source code. The upshot is that the XenSource-Citrix management layer embodied in future releases of XenEnterprise should be able to handle Viridian VMs as easily as it handles Xen VMs. That prospect, we suspect, is what persuaded Citrix to part with its half-billion.

Three other small vendors are worth bearing in mind. Sydney, Australia-based Open Kernel Labs provides the OKL4 microkernel operating system to customers like Ericsson (Nasdaq: ERIC) and Qualcomm (Nasdaq: QCOM) for embedded applications. Similarly, Trango Virtual Processors licenses its Trango hypervisor to semiconductor and device manufacturers for use with ARM Holdings' (Nasdaq: ARMHY) and MIPS Technologies' (Nasdaq: MIPS) chips. Finally, VirtualLogix, formerly Jaluna, grew out of Sun Microsystems' (Nasdaq: JAVA) Chorus team, makers of a real-time operating system for telecommunications hardware. VirtualLogix VLX is packaged for use in digital multimedia, mobile handsets and network infrastructure.

Find out who they think are the acquirers and read the entire post, here.

Published Saturday, September 08, 2007 3:41 PM by David Marshall
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