Cisco Systems put its money where Chairman and CEO John Chambers' mouth is with a $150 million equity investment in server virtualization vendor VMware, with solution providers expecting the investment to help spur even more interest in virtualization among their customers.
With the investment, Cisco becomes the second major strategic investor in VMware this month after Intel said on July 9 that it invested $218.5 million in VMware.
Storage giant EMC said in February that it will sell a 10-percent stake in VMware through an IPO in a move to help VMware employees realize more value from the company independent of what they receive as part of the overall EMC organization.
Cisco's move to purchase $150 million of VMware's Class A common shares currently held by EMC, VMware's parent company, means that it will own approximately 1.6 percent of VMware's total outstanding common stock, which is less than one percent of the combined voting power of VMware's outstanding common stock.
VMware has also agreed to consider the appointment of a Cisco executive to VMware's board of directors at a future date, Cisco said.
The move fits well with Cisco's push into virtualization across the data center as addressed by Chambers at his company's Cisco Live 2007 end-user conference, held earlier this week in Anaheim, Calif.
"The role of virtualization, when you talk about where the industry is going, is huge: [it's] the ability first to be able to communicate to any server, any application, any content in your data center, and then to take that concept and drive it all the way through your home," said Chambers during his keynote address.
At the conference, Cisco said it is building out a data center specialization strategy that focuses on network infrastructure, storage networking, and application networking. The new specializations do not count toward a partners' certification status but do provide training and technology badges for partners that are building data center practices.
In an update to VMware's S-1 filing with the Securities and Exchange Commission, VMware wrote that the two companies also entered into a "routine and customary collaboration partnering" agreement.
That agreement "expresses the parties' intent to expand cooperative efforts around joint development, marketing, customer and industry initiatives," with Cisco's purchase "intended to strengthen intercompany 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."
That cooperation is causing excitement in the channel as solution providers look for ways to capitalize on growing customer interest in virtualization across ever-more parts of the data center.
Rob Wolfe, president and CEO of AvcomEast, a Silver Spring, Md.-based provider of server and storage virtualization technologies, said the investment is a direct fit with how his company does business, especially as Cisco moves toward offering solution providers data center specialization around virtualization.
"Cisco has been making great strides in storage," Wolfe said. "Now it is making strides in virtualization, and now it is investing in VMware. The prospect of a virtualization specialization from Cisco is very appealing, and fits with the server virtualization work we do with VMware."
Cisco's investment in VMware is intriguing, Wolf said. "We'll have to see where it goes. We are a VMware partner, but not an EMC partner. But EMC has done a great job with VMware. It's a great example of how to let an acquired company survive and thrive, and not get stagnant like what usually happens. The way that EMC has respected the VMware brand is how others should invest."
Peter Castaldi, principal at Kovarus Technical Solutions, a Cisco partner in San Francisco that also teams with data center players such as VMware, EMC, Network Appliance and Symantec, said he finds the investment an interesting move.
"We're seeing more virtualization to the back end of the server, and the glue is networking," Castaldi said. "What companies like Cisco and Symantec do is very important. They help customers feel comfortable about moving virtualization from test-dev (testing and development) to production applications. Having the partnership between Cisco/VMware will give them piece of mind that they can move to successful deployment with Cisco backing them."
Such investment helps move concepts like virtualization from buzzword to reality, Castaldi said. "Customers have seen virtualization as a buzzword, but now they are starting to see companies like Cisco invest, which helps companies like us," he said.
A Cisco spokesperson said that Cisco views virtualization as a large market opportunity and one that is transforming the data center and computing environment. The spokesperson also said that Cisco invests in companies primarily with strategic intent and with the interest to stay close to key market transitions, and that Cisco's investment will help the Cisco and VMware collaborate on solutions that address the intersection of networking and virtualization technologies.
Jennifer Hagendorf Follett contributed to this story.