Nicira chief technology officer and co-founder Martin Casado Nicira VMware today announced that it will gobble up one of the hottest startups in the Valley for $1.26 billion: Nicira.

Nicira just came out of stealth mode in February and it was one of the hottest, most talked about startups in the network industry. That's because Nicira makes technology that will completely change how companies build networks. It will do for networks what VMware software did for servers, use a technology called "virtualization."

VMware will acquire Nicira for approximately $1.05 billion in cash plus approximately $210 million of assumed unvested equity awards.

It makes a lot of sense for VMware to acquire Nicira, especially because VMware has slowly been pushing itself into a similar space. VMware already makes a technology that helps companies build "virtual" networks, similar to how it makes "virtual" servers. With Nicira it has added the premiere technology for doing this sort of networking-as-a-software-application. Nicira's technology is particularly great at cloud computing, which Ben Horowitz calls a $37 billion opportunity.

VMware partner Cisco can't be happy about any of this.

Remember, Cisco just invested $100 million into its spin-in called Insieme. And if Insieme's products work well, Cisco will eventually buy it out for $750 million. That spin-in is building a direct competitor to Nicira.

Also see: The $40 Billion Network Gear Market Is Headed For A Cliff