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Tech: What Is The Impact of VMware-Nicira Marriage on Cisco, Juniper?

VMware-Nicira ImpactAnalysts are still poring over the information, and the uncertainty surrounding VMware’s (NASDAQ:VMW) purchase of software company Nicira (annoucned Monday) is affecting not only VMW stock, but also competitors like Cisco (NASDAQ:CSCO) and Juniper (NASDAQ:JNPR), whose stock is also falling – though more sharply – with the theory that they might be losing market share.

VMware is currently down slightly at $89.50 per share, while CSCO is down nearly 5 percent to $15.30 and JNPR is off nearly 4 percent to $14.65.

The idea coming out of some circles is that Nicira’s business model has been based on establishing one universal Ethernet switch and eliminating the proprietary switches like those made by Cisco and Juniper. Nicira has not been a blip on the radar in its quest, but with VMware’s resources, it’s possible now that Nicira may gain some momentum, and if it can develop that universal switch, it just may take over the market from Cisco and Juniper. Based on the sharp drops in thsoe stocks today, that theory seems to be the one that is prevailing at this point.

VMware announced it was buying Nicira for $1.05 billion, plus about $200 million in unvested equity. The deal is expected to close in the second half of 2012.

This acquisition, if it comes through to be the boon as proposed, will be welcome for VMW stockholders like Jim Simons’ Renaissance Technologies, which had a $177 million stake in VMware at the end of March (increasing its stock hold by 43 percent during the first quarter of 2012), and for Christopher Lord’s Criterion Capital, which made an initial play of nearly $92 million in the first quarter.

Cisco and Juniper hedge-fund investors, on the other hand, may not be inviting this news – investors like Andreas Halvorsen’s Viking Global (Cisco) or D E Shaw (Juniper). Viking Global had increased its stake in Cisco by more than 300 percent in the first quarter of 2012 to $683 million; while D E Shaw upped its stake in JNPR stock by more than 140 percent to nearly $28 million by the end of March.

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