Cisco slashing stake in VCE joint venture with EMC/VMware

VCE to become an EMC Business, with Cisco stake cut to 10%

UPDATE (10/22/14): EMC confirmed on Wednesday that its VCE converged infrastructure joint venture with Cisco and VMware is heading into a new phase, with EMC taking control of the business and Cisco drastically cutting its stake in it.

"Expected to be finalized this quarter, VCE will become an EMC business. Cisco and VMware will continue as strategic partners and investors, with Cisco having an approximately 10% equity interest in VCE," according to an EMC statement, which emphasizes VCE's focus on helping customers deploy hybrid clouds.

Cisco had owned a 35% stake in the venture, and EMC's ownership now rises to 80%. EMC was able to squeeze a canned quote from Cisco CEO John Chambers on the change: "VCE represents another example of Cisco’s strategy of aggressively investing to drive key market transitions. VCE was created to positively disrupt data center architectures utilizing Cisco’s UCS and Nexus platforms, and we have been thrilled with the execution, results and customer demand the VCE team has delivered.  I look forward to the next chapter of VCE’s evolution and Cisco’s continued commitment in VCE as a crucial route to market for Cisco’s next-generation technologies for the data center and cloud.”

ANALYST VIEW: Why EMC acquired VCE from Cisco | Industry reacts to VCE shake-up

A press alert from EMC that it will be announcing a "new business development" on Wednesday has triggered reports that the company plans to buy out most of Cisco's stake in their VCE converged infrastructure joint venture.

Melding VCE's revenues with its own could give EMC a much-needed financial boost, according to Bloomberg, which first reported Tuesday on the anticipated split based on unnamed sources. Richardson, Texas-based VCE boasted in May of surpassing its 2013 goal of generating $1 billion in annual sales of its vblock Systems and other offerings, and has continued continued to pump out new products as recently as a couple of weeks ago.

See also: Why EMC acquired VCE from Cisco

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While neither Cisco nor EMC is commenting yet on the nature of Wednesday's announcement, it wouldn't surprise anyone if Cisco is backing away from VCE given that it increasingly is competing with EMC and its VMware virtualization/cloud subsidiary, another VCE partner that helped form the venture in 2009 (Intel was also an investor). We got Cisco and VMware executives this past summer to take part in a spirited debate over whose approach to building data centers was best.

Cisco has cozied up to EMC rival NetApp and hit the data center hard with its Unified Computing System servers, while VMware has gone head-to-head with Cisco via its acquisition of software-defined networking (SDN) company Nicira, whose products threaten to replace legacy routers. EMC's acquisition of Cloudscaling and Cisco's purchase of Metacloud, both OpenStack companies, has further complicated the VCE partners' relationship. Cisco has also lost a key data center executive to VMware recently.

EMC has been in the middle of much speculation in recent months. Over the summer, there was a push by some investors for EMC to ditch its 80% stake in VMware. More recently, reports surfaced about EMC and HP having held merger talks. And the latest speculation comes as IT industry breakups, from eBay-PayPal to Symantec and HP, have become all the rage.

Meanwhile, speculation over Cisco possibly curtailing investment in VCE arose earlier this month, with both Cisco and EMC dismissing such talk.

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