On January 17, 2017, HP Enterprise (HPE) announced its intention to acquire hyperconverged infrastructure (HCI) firm SimpliVity for $650M in cash. This acquisition is a result of several months of speculation that such a deal would happen.

From a deal perspective, $650M is 35% lower than the valuation SimpliVity received in March 2015 during its last funding round, in which the company was valued at over $1B. In comparison, SimpliVity’s fiercest competitor, Nutanix, went public at the end of last year, raising nearly $300M in capital, and has a current valuation over $4B.

SimpliVity was founded in 2009 by CEO Doron Kempel, amongst others. Kempel is also known for his previous startup, Diligent, which was acquired by IBM in 2010.

Neuralytix believes that this gives HPE the best opportunity to compete against Dell EMC’s VxRAIL hyperconverged infrastructure solution. What is interesting is that the SimpliVity solution leverages many elements of the VMware ecosystem. This will place pricing pressures on HPE as it goes to market with its ProLiant servers in the second half of 2017.

Additionally, Neuralytix only recognizes SimpliVity as been suitable for midmarket implementation; whereas Dell EMC has VxRACK, it’s webscale hyperconverged solution, against which HPE/SimpliVity does not have a competitive solution.

That said, the midmarket will pose the most opportunity for HPE/SimpliVity, along with its two other major competitors Dell EMC and Nutanix.

In our opinion, HPE’s acquisition of SimpliVity reinforces Neuralytix’s believe that the acceptance and deployment of HCI will accelerate dramatically. In an upcoming report, we will provide details in which Neuralytix believes that the HCI market is growing at a compounded annual growth rate (CAGR) of over 300% through 2020.