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Why Did Cisco Shut Down Its Data Storage Business?

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Aug. 11 2015, Updated 11:06 a.m. ET

Cisco decides to shut down its data storage business

Cisco (CSCO) acquired Whiptail—a data storage player—in 2013 for $415 million in order to enter into this market. Through this acquisition, Cisco released the Invicta line of data storage products. However, according to a report from Cisco, the company will shut down its data storage business. Last year, Cisco faced quality issues for the Invicta line of products. This is what prompted Cisco to shut down the business, according to a report from CRN.

Another issue that Cisco faced with the launch of data storage products was head-on competition with EMC’s (EMC) line of flash storage products. Incidentally, Cisco and EMC have been partners.

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Cisco sells its UCS (Unified Computing System) products through a joint venture with EMC and VMware (VMW)—popularly known as VCE. The companies created the joint venture with the vision of establishing a converged infrastructure for data center consolidation, SaaS (software-as-a-service), and the cloud computing market. VCE offers enterprise IT solutions using technologies from VMware’s computing, Cisco’s networking, and EMC’s storage. This joint venture manufactures products under the name “Vblocks.”

With the help of UCS products, Cisco had strong revenue growth in its Data Center segment. As the above chart shows, its Data Center business had a YoY (year-over-year) revenue growth rate of 21%—the highest among all of Cisco’s other segments in fiscal 3Q15.

Strained relationship with EMC 

The relationship between Cisco and EMC was strained even more when Cisco was involved in a partnership with EMC’s competitor NetApp (NTAP). Cisco sells products under the name FlexPod in its partnership with NetApp. It’s essentially a combination of Cisco’s UCS and NetApp’s FAS (Fabric-Attached Storage) products. In a quest to improve its relationship with EMC, Cisco might have been prompted to shut down its data storage business.

If you’re bullish about Cisco, you can invest in the Technology SPDR (XLK). XLK invests 3.50% of its holdings in Cisco.

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