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Cisco and EMC in joint venture blitz

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The long rumored partnership between networking giant and server wannabe Cisco Systems, server virtualization juggernaut VMware, and storage powerhouse (and VMware owner) EMC will be announced this week, according to various reports.

The three companies have been rumored to be working on some sort of formal joint venture to jointly take on the data center since August, when they said in a vague announcement that they would sell virtualized data centers together. There have also been rumors swirling around that Cisco and EMC would create a joint venture, code-named Alpine, that would take assets from both companies and create its own sales force and channel to peddle products and offer integrated support and custom services to large data center operators. Basically, a joint venture would allow the two very different companies to look like one as far as customers are concerned, but one that is backed by the full faith and balance sheets of Cisco and EMC.

This appears to be what Alpine is all about, according to the current rumors. A report at Reuters suggests that the joint venture will sell a line of products called vBlock, which will focus on selling virtualized infrastructure for cloud computing. Citing sources familiar with Cisco's and EMC's plans, vBlock will consist of Cisco's networking and servers, EMC storage, and VMware server and network virtualization. The products will be sold directly to data centers. Or, for those who would rather just get it cloud-style, with a bill based on utilization and have someone else actually run it, EMC and Cisco are setting up a joint venture to peddle vBlock on an infrastructure as a service cloud.

Of course, EMC already sells its Atmos cloud services, and it is unclear what will happen to these products. EMC launched the Atmos storage utility in May and the compute cloud went into beta in early October and is presumably being readied for launch. Everyone expects that the Atmos compute clouds are based on Cisco servers and switches. They are being virtualized with the ESX Server 3.5 hypervisor and their Virtual Infrastructure 3 tools, not the latest ESX Server 4.0 hypervisor and related vSphere 4.0 tools, which is a bit odd.

The Dow Jones newswire is reporting that people familiar with the plan say that the vBlock products are a combination of Cisco's "California" Unified Computing System blade servers, which sport an integrated vSphere 4.0 stack and a virtual switch from Cisco called the Nexus 1000V as well as physical switches capable of supporting server Ethernet and storage Fibre Channel protocols over the same switches and wires within a cluster of blades.

The Dow Jones report says that the joint venture will be announced ahead of Cisco's first quarter of fiscal 2010 financial results, due Wednesday. It also says that the venture will sell, maintain, and support the combined vBlock product line and that the joint venture will have its own chief executive officer and, presumably, some freedom to integrate and peddle specific products to meet data center needs.

By selling its converged products through a joint venture that is at least somewhat separated from the three companies, Cisco, EMC, and VMware can claim to still be neutral when it comes to other partners. But the reality is that Cisco is a networking vendor that long since branched out into storage and now servers and EMC is a storage vendor that has branched out into servers with its Ionix management tools and, of course, its acquisition of VMware. If Cisco and EMC really want to take on IBM and Hewlett-Packard for hegemony in the data center, they should just merge and get it over with.

But no one does old-fashioned mergers anymore - even if they might be good for the resulting companies in the long run - because no one gets rich quick off a merger. An acquisition of EMC by Cisco or Cisco by EMC is out of the question. With Cisco's $131.2bn market capitalization and EMC's $33.6bn valuation (not including the $15.4bn valuation for VMware), neither can afford to buy the other. Cisco has about half the cash it might need to do an EMC/VMware buyout. Under these circumstances and at this point in the history of the IT market, a merger might make sense. ®

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