Cisco Seeks a Seat at the VMware Table

7/27/07Follow @wroush

VMware, the Palo Alto subsidiary of Hopkinton-based data storage leader EMC (NYSE: EMC), continues to make news in advance of its hotly anticipated August IPO. The maker of server virtualization software said today that Cisco Systems (NASDAQ: CSCO) will buy VMware Class A shares worth $150 million, giving Cisco a 1.6 percent stake in the company.

Silicon Valley big boys have been lining up recently for a piece of VMware: chipmaker Intel ponied up $218.5 million on July 9 for a 2.5 percent ownership stake. VMware’s IPO will make another 10 percent of the company available to the public, raising as much as $700 million to $1 billion.

The Cisco and Intel investments will, no doubt, help build the buzz around VMware in advance its initial public offering. The IPO, as we observed a few days ago, comes at a fortuitous time for VMware, which faces increasing competition from rival virtualization-software providers.

“Virtualization is clearly going to be an important part of most hardware and software suppliers as processing, memory, and storage power overshoots what most use,” says Dan Kusnetzky, an independent software industry analyst whose blog on virtualization is hosted by ZDNet. “Cisco, like Intel, has invested in a number of virtualization companies over the past few years. Most of Cisco’s investments, however, have targeted network-virtualization companies,” he adds.

“Cisco wants a place at the VMware table so it can influence the direction of that company,” says Kusnetzky. The $150 million might just buy Cisco that invitation: “VMware has agreed to consider the appointment of a Cisco executive to VMware’s board of directors at a future date,” according to today’s announcement.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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