Cisco Investing $150 Million in VMware

Cisco's $150 million investment comes on the heels of $200 million from Intel and on the eve of VMware's expected IPO.

VMware, on the eve of its highly anticipated initial public offering, finds itself with a new partner and investor—Cisco Systems.

On July 27, the two companies announced that Cisco will invest $150 million in VMware and receive about 1.6 percent of the virtualization vendors common stock. The investment also means that VMware will appoint a Cisco executive to its board of directors after the IPO is formally announced later this year.

The Cisco investment follows a similar move by Intel, which announced on July 9 that it would invest $200 million in the company and also have an representative sit on VMwares board.

The latest investment in VMware comes as the companys IPO draws closer to becoming reality, although no formal date for the announcement has been set. When it does happen, EMC, which now wholly owns VMware as a subsidiary, will sell off about 10 percent of the company.

Even after the IPO is announced, EMC will still control about 90 percent of the Palo Alto, Calif., companys stock, making it the companys largest investor. In addition to the stock that is sold with the IPO and investment by companies such as Cisco and Intel, a portion of VMwares shares will be set aside for its employees.

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EMC originally bought VMware in 2004 for a total of $635 million. By the end of 2006, its revenues had increased about 83 percent for a total of $703 million.

In a statement, VMware said that the Cisco investment will lead to a new collaboration that will combine virtualization technology and networking infrastructure that will expand the technology within the data center.

"Ciscos purchase is intended to strengthen inter-company collaboration towards accelerating customer adoption of VMware virtualization products with Cisco networking infrastructure and the development of customer solutions that address the intersection of virtualization and networking technologies," the VMware statement said.

VMware is considered the leader in x86 virtualization and a recent report by Forrester Research found that the company will likely dominate the market well into the next decade, although new offerings by Microsoft and XenSource could eventually challenge its command of the market.

In addition, a group of OEMs, including Hewlett-Packard, IBM and Sun Microsystems, have begun to improve the virtualization capabilities of both the hardware they produce as well as the operating systems designed for these systems.

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