Microsoft acquires Fungible to strengthen its data center and networking chip capabilities for Azure.

Microsoft has acquired data processing unit (DPU) startup Fungible, with Fungible's engineers joining Microsoft's datacenter infrastructure engineering team. Fungible was founded in 2016 by former Juniper CEO Pradeep Sindhu and one-time Apple SVP for engineering Bertrand Serlet. While neither company disclosed the terms of the deal, reports last month indicated that Microsoft had acquired Fungible for $190 million. Fungible has reportedly raised over $300 million in venture funding from SoftBank's Vision Fund and Northwest Ventures. The company brought on former Broadcom and Marvell exec Eric Hayes as CEO in 2021, who then brought on former NetApp and Rackspace executive Toby Owen as VP of product.

DPUs, also known as "Smart NICs," are designed to process data significantly faster than CPUs. According to a forecast by Allied Market Research, the DPU market in 2021 was $554 million, and at a projected 27% compounded annual growth rate, the market is expected to reach $5.5 billion by 2031. Fungible started shipping its first DPU chips in 2020, including the F1 DPU, an 800 Gbps processor designed for high-performance storage analytics and security appliances, and the S1 DPU, a 200 Gbps processor for standard compute servers running in host sites that offloads all infrastructure services from the CPU. Last year, Fungible upgraded its Storage Cluster and rolled out GPU-Connect, designed to connect any GPU to any server linked via an Ethernet network. Last year, Fungible also launched its FunPX partner program, which included the rollout of a partner portal with deal registration, regional channel account teams, and demand-generation assets.

Fungible faces larger rivals making DPUs, including Nvidia, which offers its BlueField DPUs. Last year, AMD jumped into the DPU race, acquiring Pensando for $1.9 billion. VMware last year optimized its new vSphere 8 for DPUs, while Dell, HPE and Lenovo are planning to offer servers with DPUs. Microsoft's acquisition follows its previous acquisition of Lumenisity, which provides hollow-core fiber (HCF) technology. According to Girish Bablani, Microsoft's corporate VP for Azure Core, this acquisition "further signals Microsoft's commitment to long-term differentiated investments in our data center infrastructure, which enhances our broad range of technologies and offerings including offloading, improving latency, increasing data center server density, optimizing energy efficiency and reducing costs."

As Mary Jander, a senior analyst at Futuriom, noted, "Microsoft's acquisition of two component-level technologies signals a focus on improving the underlying compute, storage, and networking functionality in Azure." All major chip suppliers have relationships with AWS, Microsoft and Google Cloud. AWS has its own silicon and custom Intel processors for streamlining basic cloud service functions, while Google Cloud is using Arm's Ampere Altra chips to augment its infrastructure. For the major cloud providers, Jander emphasized, "the advantage of owning the underlying technology" is that it "ensures supply, reduces wait times, and enables more competitive technology — at least in theory."