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Cisco to buy Nuova and sell its FCoE switch

Get rich quick spin-in comes home

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Cisco has revealed what its $70m "spin-in" investment in Nuova Systems has been all about.

Nuova and Cisco have co-developed a new series of Fibre Channel over Ethernet switches for the data center. The companies announced the gear today at Cisco's annual Partner Summit in Honolulu.

Cisco also said it intends to purchase the remaining 20 per cent of Nuova that hasn't already been assimilated by the networking giant. The potential payout for Nuova — a company comprised of a number of (now formally) former Cisco executives — is between $10m and $678m depending on the success of the switch. Quite a discrepancy there, eh?

The new modular Cisco Nexus 5000 series switch delivers line-rate, low-latency 10Gb E as well as Fibre Channel over Ethernet (FCoE) switching. The switch is intended to complement Cisco's "core" switches, which includes the massive Nexus 7000 series which was announced last January. That puts the Nexus 5000 square into Cisco's "Data Center 3.0" vision to unify the "fabric" of storage and servers with a new generation merchandise.

The company plugs its strategy as helping data centers by simplifying cabling and reducing the number of adapters required.

Cisco's 80 per cent stake of Nuova was first acquired in August 2006 for $50m. The deal was a "spin-in" investment, where employees break off from the company for a few years to run their own ventures, before being scooped up once again.

Many of the Nuova employees came from Cisco's first-ever acquisition of Crescendo. Others were a part of Cisco's acquisition of Fibre Channel switch maker Andiamo.

Since the initial investment, Cisco had injected $20m more into Nuova and promised to purchase the rest some day.

As it turns out, that day is expected to be Cisco's fourth fiscal quarter, which ends in July.

Pricing for the Nexus 5000 starts at $36,000 for a fixed configuration of 40 ports. It's expected to be available May 2008.

One might expect Cisco's employees not lucky enough to be part of these spin-in deals to get quite upset, as they remain dependent on stock options for extra salary padding. Meanwhile, the spin-inners have their start-up, funded by Cisco, valued at a massive amount and can split the rewards between few people. Cisco shareholders may also be interested in this practice. ®

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