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VMware, Novell in acquisition talks, WSJ says

A VMware/Novell acquisition is in the works, according to The Wall Street Journal.

The paper has just reported that Novell “is in advanced talks” to sell its SUSE Linux operating system business to VMware and the rest of its assets to Attachmate, a “private-equity backed software company.” Contrary to what was said in yesterday’s New York Post report (which did not name VMware, only a “strategic buyer”), the Journal says the sides have not finalized any agreements and that VMware and Novell “still differ on valuation.” The Journal’s report is attributed to “people familiar with the matter.”

After yesterday’s Post report, I wrote a blog sizing up all of Novell’s potential suitors, and VMware was at the top of the list. Here’s what I said about the potential VMware/Novell acquisition:

After VMware announced its exclusive virtual appliance deal with Novell in June, the acquisition rumors started circling. That has VMware as the favorite among many observers. … But there are a few major points that don’t make VMware a sure bet. Most importantly, Novell doesn’t fit the traditional VMware acquisition strategy, which is to pick up smaller growth companies in an “opportunistic” fashion. Plus, some VMware execs have privately intimated that the virtual appliance deal means much more to Novell than it does to VMware.

Now let’s take a slightly deeper look at a potential VMware/Novell acquisition. The virtual appliance deal put the spotlight on closer integration between the virtualization layer and the OS layer. But virtual appliances are just one way to combine the two. By acquiring Novell SUSE Linux, VMware would have significantly more options — like, to bundle its hypervisor with the OS, a la Microsoft. That could help VMware in the SMB market, where it’s facing its biggest challenge from Hyper-V.

More importantly, acquiring Novell SUSE Linux would completely alter the face of VMware. With VMware’s recent acquisitions — SpringSource and Zimbra, in particular — there has been a lot of talk about the company moving beyond virtualization. But most people still viewed VMware as a virtualization vendor that just happened to own a development platform and an email provider. That wouldn’t be the case anymore. VMware would establish itself as a full-blown infrastructure and software vendor.

Is that a good thing? Depends who you ask. There are many who viewed VMware’s acquisitions of Zimbra and, to a lesser extent, SpringSource as needless distractions. “Why does VMware need an email solution?” these people asked. “With the challenge from Hyper-V, shouldn’t VMware be focusing strictly on virtualization?”

Then there are others who say the challenge from Hyper-V — and the commoditization of the hypervisor in general — is the exact reason why VMware should be expanding beyond virtualization. Virtualization alone won’t keep VMware growing; offering a full infrastructure stack will. And an OS is a major part of that equation.

Which side are you on? Let us know in the comments.

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