Sources: Cisco In Talks With IPO-Bound Nutanix About Strategic Hyper-Convergence Partnership

Cisco Systems, which tried unsuccessfully to acquire Nutanix last year, is once again in talks with the hyper-convergence startup, three sources familiar with the talks told CRN this week.

This time, Cisco and Nutanix are discussing a strategic partnership in which channel partners from both vendors would sell Cisco Unified Computing System (UCS) servers with integrated hyper-convergence software from Nutanix, said the sources, who didn't want to be named because the talks are confidential.

Nutanix and Cisco haven't yet finalized terms of the partnership, and it's possible an agreement may not be struck, the sources said.

Spokespeople from Cisco and Nutanix declined to comment.

These types of arrangements, known as a "meet-in-the-channel" partnerships, are on the rise in the emerging market for hyper-converged infrastructure, which refers to compute, storage and networking running virtually on x86 server hardware. Cisco has a similar partnership with number two hyper-convergence player SimpliVity, which has one with Lenovo.

Nutanix also has OEM agreements with Dell and Lenovo, in which the vendors jointly build and sell hyper-converged infrastructure appliances.

Cisco with HyperFlex, a product that marries its UCS servers with technology from software-defined storage startup Springpath. Cisco has invested in Springpath and has the option of acquiring it based on revenue results, said the sources.

Early returns on HyperFlex have been mixed. Although some Cisco partners are seeing demand for the product, several of the vendor's top partners have , despite being told by Cisco they'd get it in March.

A Cisco spokesman said the delay is due to higher-than-expected demand for HyperFlex, and that customer shipments are taking priority until Cisco can ramp its production of the product.

Meanwhile, some Cisco customers have also experienced issues with getting HyperFlex to scale in their environments, sources told CRN this week.

One Cisco partner told CRN a Nutanix partnership would raise questions in the channel about whether Springpath's technology is suitable for enterprises.

"Few partners had even heard of Springpath before HyperFlex was announced," said the Cisco partner, who didn't want to be named. "The whole thing seemed hasty. It's irrational to think that somehow, out of nowhere, Cisco just happened to stumble across this fantastic hyper-converged software."

While Cisco touts HyperFlex as a more economical and better performing alternative to Nutanix, the networking giant before deciding to invest in Springpath, sources told CRN in March.

Cisco offered Nutanix around $4 billion, but Nutanix's asking price was $6 billion to $7 billion, said the sources. Cisco cut off talks and since then has made no secret of its dissatifaction with Nutanix, according to several Cisco partners.

After reports of the talks surfaced last May, Nutanix CEO Dheeraj Pandey denied that his company was looking for a buyer and said Dell would have first shot at an acquisition if that stance changed.

Nutanix and then reportedly delayed the offering because of unfavorable market conditions. Last month Nutanix updated its S-1, apparently signaling that .

In its IPO filing, Nutanix said its revenue grew 85 percent to $190.5 million during the first half of its fiscal 2016, but it also reported an accumulated deficit of $345.2 million.

Given the current turbulence in the IPO market, Dell's preoccupation with acquiring EMC, and Cisco's previous struggles in storage with the glitch plagued Invicta line, some partners believe Cisco may make a last-ditch play to acquire Nutanix.

While Cisco would have to raise its earlier bid considerably, it has paid steep multiples to acquire similar market leaders like Meraki and Sourcefire, two Cisco partners said.