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Cisco, EMC joint venture charts growth

But VCE still losing money for both companies

The VCE converged infrastructure joint venture between EMC and Cisco said this week it surpassed its goal of generating $1 billion in sales in 2013. VCE also said it is on a $1.8 billion annualized demand run rate coming out of 2013.

Demand for the joint venture's Vblock converged server/storage/switching IT infrastructure system grew in excess of 50% in the first quarter, the fourth consecutive quarter of year-over-year growth. VCE said it also sold more than 1,750 Vblock systems to 800 customers in 60 countries since product began shipping three years ago, with seven of the 10 largest telecommunications companies in the world among its customers.

VCE also said that Gartner ranks it as the market share leader in integrated infrastructure systems, and IDC expects the integrated infrastructure market to grow at a 43.2% compounded annual rate to $11.2 billion in 2017, an increase from $3.6 billion in 2013.

VCE had more than 1,600 employees at the close of 2013 and expanded its presence in Europe, the Middle East and Africa, and in Japan and the Asia Pacific.

Despite its growth, VCE is still a money loser for EMC and Cisco. EMC has lost $871 million on the joint venture since its inception, including $75 million and $69 million in the three months ending March 31, 2014 and 2013, respectively, according to the company's most recent 10-Q. EMC also recognized $170 million and $74 million in revenue from sales of product and services to VCE during that period.

Cisco, as of January 25, lost $533 million on VCE since inception. Losses of $58 million and $44 million were recorded for the three months ended Jan. 25, 2014 and Jan. 26, 2013 , respectively, and losses of $111 million and $86 million were recorded for the six month periods ending on those dates, according to its Feb. 20 10-Q.

Cisco says it expects to make additional investments and may incur additional losses as VCE scales operations over the next 12 months.

And the joint venture is increasingly coming under the competitive crossfire between Cisco and EMC. CRN reports that EMC and VMware, of which EMC owns 80%, are buddying up with Cisco data center switching rival Arista to develop a new converged infrastructure platform under the code name Project Mystic. And Cisco's acquisition of flash memory company WHIPTAIL last year is expected to further strain relations between Cisco and EMC, and its other storage ally, NetApp.

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