Cisco Takes $150M Stake in VMware

VMware, Inc. today announced that Cisco Systems (CSCO) will acquire a $150 million equity stake in the company, reinforcing Cisco's focus on virtualization as a critical piece of its "Data Center 3.0" strategy. Cisco becomes the second tech titan to invest in the virtualization specialist prior to its eagerly anticipated IPO. Earlier this month Intel Capital acquired a $218 million position in VMware.

Both investments were made by purchasing Class A common shares currently held by EMC Corporation, VMware's parent company. Cisco's position represents 1.6% of the shares of VMware, which will consider the appointment of a Cisco executive to its board of directors.

Cisco said its purchase "is intended to strengthen inter-company 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 interoperation will be crucial as Cisco pursues its newly-announced data center strategy, in which Cisco envisions its devices and software taking a central role managing resources in highly-virtualized data center environments. Cisco is using the term "orchestration" to describe its role in the data center, and given VMware's role as the market leader in virtualization software, they'll need to work well together.

As part of its Data Center 3.0 rollout, Cisco published a white paper on the business and financial justifications for adopting its orchestration tools, which featured examples of how Cisco's VFrame Data Center can work together with VMware's ESX server and Virtual Center products.

Cisco chairman and CEO John Chambers has just been added as a keynote speaker at VMware's annual VMWorld conference. EMC plans to sell 10 percent of VMware in an initial public offering, which is expected to raise at least $750 million for the company.