By forging a joint venture with EMC and building products with VMware, Cisco Systems (CSCO) hopes to reap many of the benefits of an acquisition of one or both—without incurring the much higher costs and risks. Cisco CEO John Chambers indicated as much during a Nov. 3 press conference heralding the deal, when he lamented the frequent failure of tech-industry tieups. About 90% of these acquisitions don't succeed, and even more partnerships founder, Chambers said. "There are very few [companies] that acquire well, and even fewer that partner well," Chambers said at Cisco's San Jose headquarters.
Cisco used the event to unveil a joint venture with EMC (EMC) and a lineup of data center products in conjunction with EMC and VMware (VMW). Together, the companies will sell what they're billing as the building blocks of data centers, massive storehouses of computing power. Known as "Vblocks," the products include networking equipment from Cisco, computer storage gear from EMC, and VMware virtualization software, which is designed to boost the efficiency of servers, the computers that run Web sites and corporate networks. Vblocks will also include chips made by Intel (INTC). Cisco and EMC will form a new company called Acadia to support the new products, and Chambers said the three companies are working on at least a half-dozen additional projects.
Through the joint venture and new products, Cisco, the No. 1 vendor of networking gear, is making another incursion into the market for computer systems sold by IBM (IBM), Hewlett-Packard (HPQ), and Dell (DELL). Striking an alliance with EMC and VMware could help Cisco, one of techdom's most acquisitive companies, grab a larger share of customers' computing budgets without the cost and scrutiny of buying VMware outright. "There's been wild speculation that Cisco would buy EMC or VMware," says Brent Bracelin, an analyst at Pacific Crest Securities who has "outperform" ratings on Cisco and EMC. The deal "is a substitute for a formal merger between Cisco and EMC," he says. It "will serve as a foundation for what potentially could have been accomplished through a merger, without a lot of red tape."
VMware, 82% owned by EMC, remains a coveted prize for a number of tech companies. Companies use VMware's software to consolidate the number of computers in their data centers, and to more efficiently match computing power to demand.
Wall Street analysts and investment bankers say VMware is expensive relative to its earnings and growth rate, however. Shares of VMware, which closed Nov. 3 up 67¢, or 1.74%, at 39.12, trade at about 41 times the company's expected 2009 earnings. VMware's third-quarter profit fell 54%. The company is expected to report that this year's sales rose less than 5%, to $1.97 billion.
Post a comment about this story in Reader Discussion…
Track and share business topics across the Web.
RSS Feed: Most Read Stories
RSS Feed: Most E-mailed Stories
RSS Feed: Most Discussed Stories
About Advertising EDGE Programs Reprints McGraw Hill Careers Terms of Use Disclaimer Privacy Notice Ethics Code Contact Us Site Map Press Room
Copyright 2000-2009 by The McGraw-Hill Companies Inc. All rights reserved.
McGraw-Hill Education Standard & Poor's BusinessWeek Platts McGraw-Hill Construction AviationWeek McGraw-Hill Broadcasting J.D. Power
Read Full Article »