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Why EMC bought Cisco’s stake in VCE

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EMC becomes the majority owner of VCE

As we mentioned in an earlier part of the series, VCE was formed as a joint collaboration of VMware (VMW), Cisco (CSCO), and EMC (EMC). Earlier, Cisco had 35% equity interest in VCE. After EMC’s recent acquisition of Cisco’s stake in VCE, Cisco’s stake declined to 10% and EMC’s stake increased from 58% to 83%. After EMC’s increased stake, VCE will be a part of the EMC Information Infrastructure business, or EMC II.

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

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Increased overlap in business and growing competition

As the above presentation shows, EMC, VMware and Cisco formed VCE with clearly charted positioning and operations. However, with the strategic acquisition of Cloudscaling, an OpenStack vendor, EMC aims to operate in computing space.

VMware through its acquisition of Nicira, a network virtualization company, has emerged as a strong networking vendor. Also, Cisco, a leader in the software networking market, through its acquisition of Metacloud, an OpenStack vendor, now poses competition and challenges to VCE, VMware, and EMC. In 2013, Oracle (ORCL) acquired Nimbula, a private cloud infrastructure management software provider.

Shift to hybrid cloud precipitated the move

The IT industry has shown preference and shift towards the hybrid cloud. Gartner states that by 2017 nearly 50% of the large organizations will have hybrid cloud deployments, which users tend to prefer, as it uses features of both public and private clouds. Sensitive data can be retained on the private cloud whereas the shared data is available on a public platform.

The companies hope that the recent restructuring and shifts in equity interests of partners will free VCE to enhance its focus on simplification of the hybrid cloud deployment, which includes the advancement of Vblock Systems line too.

For VCE to stay on top, it will need to make decisions at a fast rate. VCE hopes that the restructuring will allow for faster decision making, which is an utmost requirement if VCE intends to carry on a billion dollar growth rate in this dynamic IT environment.

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