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VMware to acquire mobile device software maker AirWatch

VMware said Wednesday it plans to acquire AirWatch, in a move to extend its vision of using software to manage the surge of mobile devices in the workplace.

VMware agreed to pay $1.175 billion in cash and approximately $365 million of installment payments and assumed unvested equity.

The acquisition is a bold move by VMware CEO Pat Gelsinger, who is about 18 months into the job. It's also a clear challenge Microsoft, BlackBerry, Intel, and a raft of smaller mobile management companies, such as MobileIron and Good Technology.

AirWatch is a private company based in Georgia. AirWatch raised a $225 million Series-A round last year from Insight Venture Partners and Accel Partners, and the purchase price was rumored to be higher than VMware's $1.26 billion purchase of Nicira in 2012.

Mike Kemp | Brand X Pictures | Getty Images

VMware's move comes as the enterprise technology landscape faces upheaval. IBM on Tuesday reported revenue that fell well short of Wall Street's expectations on weak hardware sales and a tepid performance from growth markets, particularly in Asia. Intel's results last week were similarly disappointing; though fourth-quarter sales were in line, an uneven market for servers punctuated weak guidance.

(Read more: IBM earnings beat estimates, revenue comes in light)

An underlying trend: Across the tech landscape, customers are relying on software to complete tasks that once required specialized hardware. Rather than buy their own servers to run their businesses, companies are increasingly leasing computing power from large cloud computing providers such as Amazon and Microsoft. The result is a double-barreled attack on hardware margins.

By CNBC's Jon Fortt

Tune in to CNBC's "Squawk on the Street" at 11 a.m. ET Wednesday for an exclusive interview with VMware CEO Pat Gelsinger.

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