IBM Turns Back on Juniper to Buy Blade Networks

IBM today said it would buy Blade Networks, a company that makes networking gear that can help vendors combine computing and networking in a box that resembles Cisco’s unified computing system. IBM plans to pay an undisclosed amount for Blade, which is four-and-a-half years old, reported $79 million in revenue for 2009, and planned for revenue in excess of $100 million for its fiscal year, which ends in October. Update: Sources are saying that IBM paid $400 million for Blade.

The deal is also a bit of bad news for Juniper, the networking and switch maker that had a deepening partnership with IBM in the wake of Cisco launching its competitive entry into the server market, thereby alienating its former partners. Since that move, HP has made the somewhat dubious purchase of 3COM, and Dell has signed several partnerships with any networking vendor that has a port, including some with Brocade, Juniper and Mellanox.

However, Juniper released a statement noting that the deal isn’t the blow it may first appear, since Juniper is an investor in Blade. Indeed, the networking company participated in a $10 million funding round last year that gave Blade a $230 million valuation. With the deal, IBM gets a major player for the converged networking fabric, and the first with 10-Gigabit Ethernet capability and support. Blade has hundreds of customers as well as several hardware OEMs, from Netezza (another IBM buy, actually) to SGI using its switches. IBM’s press release paints the future pretty clearly:

Over the past 18 months, IBM has expanded its core networking business through relationships with leading networking companies. IBM plans to continue providing clients a choice in core networking solutions through these important, ongoing relationships while using BLADE’s industry standard-based system networking technology to create systems that are efficient, easy to manage and simple to deploy. Today, networks are made up of different layers, each one designed to pass information up and down to the next layer as data is processed. BLADE’s switches will be brought closer to IBM systems and then pass information to the core networking layer, optimizing systems performance.

In short, Juniper isn’t totally screwed, but as the data center embraces the convergence of networking and compute (in the cloud and with webscale companies), IBM will use Blade to offer its own version of Cisco’s UCS hardware, leaving Juniper and its other partners taking care of the laggards that prefer to keep their networking and computing on separate gear. It’s a large market for now, but it’s not where the future is heading. Blade spun out of Nortel in Feb. 2006 and raised $25 million in venture capital at that point. When I last spoke to Blade President and CEO Vikram Mehta in March, the company had 9,500 customers and was already working with IBM.