EMC Buys Out Cisco in VCE Joint Venture

Storage giant EMC (EMC), the subject of a number of M&A rumors the past few weeks, confirmed it will take controlling interest of its 2009 VCE converged infrastructure joint venture with Cisco Systems (CSCO) and VMware (VMW) by purchasing most of Cisco’s stake in the company.

VCE’s infrastructure products combine EMC storage, VMware virtualization and Cisco networking technology.

Bloomberg first reported that EMC planned to fold VCE into its existing business and to include the infrastructure venture’s sales into its quarterly financials. VCE’s revenue is said to be tracking to hit $2 billion this year, a substantial spike from last year.

Cisco’s ownership in VCE will be pared to 10 percent with EMC’s share now rising to 80 percent, enabling the storage vendor to run it as part of its Information Infrastructure business. VCE will continue to build Vblocks based on the same EMC, Cisco and VMware technology it’s been deploying, which means customers and channel partners shouldn’t expect any major changes.

Chief executive Praveen Akkiraju and other top brass will remain with the company, officials said in a statement.

“VCE will become an EMC business, with Cisco and VMware continuing as strategic partners and investors,” Akkiraju wrote in a blog post. “We were created to disrupt the traditional siloed infrastructure market, and without a doubt our initial joint venture structure was a great fit for this mission,” he said.

“However, now that VCE is a $2 billion company looking to expand beyond platforms to deliver hybrid cloud solutions, it’s critical to evolve to a structure that supports our broader mission from the technology and financial perspectives. As an EMC business we will benefit from being an integral part of an established leader in the data center and cloud space and be able to tap into the incredible range of technologies across EMC, VMware, Pivotal and RSA.”

EMC Chairman Joe Tucci said on an analysts’ conference call that the move was done with Cisco’s cooperation.

“I believe Cisco is one of our top, top partners, and will remain a top, top partner,” he said. Joint ventures “need to morph, change,” he said. “This is one of those changes.”

So far the buzz is that Cisco’s growing competition with EMC and VMware greased the skids for the networking giant to back away from VCE along with other factors that complicated the relationship of the three principals.

EMC has been in the middle of much M&A chatter the past few weeks, starting with word that activist investor Elliott Management was pushing the company hard to sell off its 80 percent VMware stake and progressing to recent reports that it held merger talks with HP (HPQW) over the last year that only just dissolved.

The VCE transaction is expected to close before the year is out.