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.”
“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.
EMC Buying Out Cisco’s Stake in VCE Joint Venture
IDC analysts in June said that Cisco, Oracle, VCE and IBM were the top vendors for converged infrastructure solutions.
The deal comes after more than a year of speculation around the future of VCE and possible tension between Cisco, EMC and VMware as each has made individual moves in a rapidly changing tech environment. Cisco has partnered with EMC storage rival NetApp on data center solutions, and finds itself in competition in the networking space with VMware and its NSX software-defined networking (SDN) platform. Executives from Cisco and EMC in the past have downplayed any problems with the relationship.
At the same time, EMC’s decision to add VCE to its federated management model—where the companies (RSA, Pivotal, VMware, EMC II and now VCE) operate as independent-minded entities that will leverage their capabilities to offer end users stacks of services and solutions, all of which is managed by EMC—comes as some large investors are pushing the storage vendor to do away with the federation and shed its stake in VMware.
Two days after Hewlett-Packard CEO Meg Whitman announced that her company will split in two, EMC investor Elliott Management renewed its efforts to persuade EMC CEO Joe Tucci to sell off its VMware investment and ditch the federation model. Elliott officials and other investors argue that VMware is a drag on EMC’s core business and is becoming more of a competitor to EMC, and that the federation model no longer works the way it had in the past. They also question whether the federation—which was implemented by Tucci—can exist after the CEO retires within the next year.
EMC officials have been noncommittal when Elliott has made its desires known, saying in officials statements that they are open to hearing any ideas that shareholders may have. However, Tucci in July said he was reluctant to sell off the VMware stake, telling analysts at a conference that “to me, splitting them up [and] spinning out one of your most strategic assets, I don’t know of another tech company that has done that and been successful.”