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EMC announces increased stake in VCE

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EMC increased its stake in VCE

Along with its announcement of 3Q14 earnings, EMC (EMC) announced the acquisition of Cisco’s (CSCO) stake in VCE. VCE, formed in 2009, is a joint venture (or JV) of Cisco and EMC. VCE also held minority investments from VMware (VMW) and Intel (INTC).

The companies created the joint venture with a vision of creating a converged infrastructure for data center consolidation, IT-as-a-service, and the cloud computing market. VCE offers comprehensive enterprise IT solutions by imbibing technologies from VMware’s computing, Cisco’s networking, and EMC’s storage. The name VCE takes the first letters from each of its contributing companies, VMware, Cisco, and EMC. Praveen Akkiraj will head the VCE.

If EMC performs well, it will benefit ETFs like the Technology Select Sector SPDR (XLK) that has significant exposure to the company.

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The above presentation shows the background, funding, and establishment of VCE. VCE expects to generate ~$2 billion of revenues in 2014 as compared to $24 million revenue from its initial 12 months of operations. Following the acquisition, EMC along with VMware will own 90% of the JV, while Cisco will have about a 10% equity interest in the company. To date, EMC and Cisco have invested $1.25 billion and $716 billion in VCE, respectively.

VCE displays good revenue growth

In 3Q14, VCE surpassed a $2 billion annualized revenue run-rate for Vblock and Vblock-related products and services. This is the sixth consecutive quarter of more than 50% year-over-year demand growth.

Huge growth expected in converged infrastructure space

According to the International Data Corporation, total worldwide spending on converged infrastructure is growing at 32.8% annually. Analysts expect this figure will reach approximately $14.37 billion in 2017 compared to $5.4 billion in 2013.

As we’ll see in the later part of the series, EMC intends to target hybrid cloud space through strategic acquisitions and new launches. It aims to use VCE to deliver its hybrid cloud products.

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