EMC Buying Out Cisco's Stake in VCE Joint Venture

The data storage vendor will own more than 80 percent of VCE when the deal closes, while Cisco will retain 10 percent.

EMC logo

Data storage giant EMC is buying out most of Cisco Systems' stake in converged infrastructure vendor VCE and will fold it into its federations of businesses.

The two companies and VMware—of which EMC owns about 80 percent—launched VCE in 2009, offering an integrated data center solution called Vblocks that included servers and networking capabilities from Cisco, storage from EMC and virtualization technology from VMware.

Since then, the joint venture has grown rapidly, and officials with both Cisco and EMC said that the increasing demand for VCE products coupled with the increasing competition in the converged infrastructure space calls for a more traditional business model that will enable VCE to be more agile and responsive.

As a joint venture, the company essentially had to answer to multiple parties on everything from product strategy to financial issues, officials with Cisco, EMC and VCE said Oct. 22 during a conference call with journalists and analysts. It was difficult for VCE officials "having to go to two different parents all the time for investments," said Gary Moore, president and COO at Cisco and co-chairman of the VCE board of directors. "VCE will now be able to move much faster."

As a part of EMC, it also will be able to more easily draw on the capabilities of other companies under the EMC umbrella, including RSA for security and Pivotal for big data and platform-as-a-service (PaaS), said VCE CEO Praveen Akkiraju.

Cisco—which had owned 35 percent of the company—will retain a 10 percent stake in VCE and will continue to have a voice in the firm's direction. VMware will continue to own less than 10 percent of VCE, with EMC taking more than 80 percent share. Moore and Akkiraju said VCE will continue to leverage technologies only from EMC, Cisco and VMware, with the CEO saying that "we believe we have a winning formula here."

Moore agreed.

"None of the three of us or the companies we work for want to screw this up," he said.

Executives expect the deal to close this quarter.

VCE continues to see strong growth. It was surpassed a $2 billion-a-year run rate for Vblock and related products and services, and the third quarter was the sixth consecutive quarter of demand growth of more than 50 percent, the officials said. More than 2,000 Vblocks have been deployed, and executives said that an IDC study found that with Vblocks, customers can deploy new services five times faster than with traditional data center systems, as well as reduce downtime by 96 percent and lower their yearly data center costs by 50 percent.

VCE also is in a market that is expected to continue growing rapidly. IDC analysts have said the market for converged infrastructure will grow 32.8 percent a year and will hit $14.27 billion in 2017, a jump from $5.4 billion last year. Much of the growth is driven by enterprises and smaller companies as they continue to migrate their businesses to the cloud and look for efficient, agile and cost-effective data center solutions to handle such trends as big data and mobile computing.