Cisco to pay $150m for stake in EMC's VMware
Networking company becomes 2d leader in industry to invest
EMC Corp. of Hopkinton is selling a $150 million stake in its VMware Inc. software subsidiary to networking hardware maker Cisco Systems Inc. The deal will give Cisco a 1.6 percent stake in VMware and comes about two weeks after the leading computer chip maker, Intel Corp., bought a 2.5 percent stake in the company for $218.5 million.
Earlier this year, VMware disclosed a plan to sell about 10 percent of its stock to the public, in an offering that could bring in as much as $949 million. VMware officials declined to comment about the Cisco deal, citing a legally mandated "quiet period" prior to the VMware stock offering, which is expected sometime this summer.
VMware is the top maker of "virtualization" software, which dramatically increases the number of tasks that can be performed on a single computer. Companies around the world have embraced virtualization because it lets them run their data centers with fewer computers and also reduces their electricity bills. Since EMC purchased VMware for $625 million in 2004, VMware's sales have soared; last year's revenues of $709 million were up 83 percent over 2005.
"We made this deal because we view virtualization as a large market opportunity and a technology that is transforming the data center and computing," said a Cisco spokesman who declined to be named. The spokesman said an investment in VMware will help Cisco add features to its networking equipment so it will work better in data centers that rely on virtualization.
"It certainly gets them closer to the company and makes it easier for them to do some of the technical integration that'll be required," said John Humphries, a virtualization analyst at IDC Corp in Framingham.
Humphries said that some uses of virtualization may conflict with the demands of network security. If a computing task can be moved to any server in a network, some sensitive tasks might be run on servers with inadequate security. "It's going to require integration between switches and routers and what's going on in the virtualization layer" to limit the risk, Humphries said, adding that the deal with VMware will help Cisco build solutions into its products.
Hiawatha Bray can be reached at bray@globe.com. 
