It's Official: VCE Becoming An EMC Company

VCE said Wednesday it's officially becoming "an EMC business," confirming weeks of speculation that Cisco Systems is reducing its ownership stake in the converged infrastructure joint venture.

Cisco's stake in VCE is being cut from 35 percent to roughly 10 percent, in an effort to drive what it called "the next phase of evolution" for the company. The change is expected to be finalized this quarter.

EMC, whose 58 percent ownership stake will rise to approximately 90 percent, will include VCE within its federation of subsidiary companies, which includes Pivotal, RSA and VMware.

CRN first reported two weeks ago that Cisco was considering ending further investment in VCE. The amount EMC paid for Cisco's stake was not disclosed.

Related: EMC To Reveal It's Absorbing VCE Joint Venture, Buying Out Most Of Cisco's Stake

VCE said it will continue to sell and support its Vblock systems, which today feature a mix of technology from Cisco, EMC and VMware. Despite Cisco's reduced stake, VCE said it remains committed to including Cisco products, such as its Application Centric Infrastructure and Unified Computing System, in the Vblock road map.

"VCE will continue to offer industry-leading Vblock systems, which will feature best-of-breed compute and networking exclusively from Cisco," a VCE spokesperson told CRN.

VCE CEO Praveen Akkiraju and his senior management team will remain intact, driving what VCE called "its own mission, operating charter and organizational structure."

Cisco and EMC, which created VCE in 2009 alongside VMware, said a change in ownership structure was necessary to expand VCE and position the company for long-term growth.

"VCE's size, scale and market reach now requires a more traditional business structure," said Joe Tucci, chairman and CEO of EMC, in a statement. "Our commitment to increased investment will enable VCE to significantly expand the scale and scope of its solutions, helping customers take better advantage of hybrid cloud and next-generation IT opportunities.’

Cisco Chairman and CEO John Chambers, for his part, said in a statement that VCE will continue to be a "crucial route to market" for Cisco data center and cloud solutions.

VCE executives first hinted at a change of ownership at a partner meeting earlier this month but said the change wouldn't affect the technical or architectural road map for VCE, sources told CRN.

Cisco, to date, has invested around $716 million in VCE, including $185 million in fiscal 2014, according to a July 10-Q filing by the San Jose, Calif.-based vendor. As of July 26, Cisco had recorded cumulative losses of $644 million from VCE.

Kent MacDonald, vice president of converged infrastructure and network services at Long View Systems, a Calgary, Alberta-based solution provider and VCE partner, said VCE being absorbed into EMC is a reflection of the maturity of the company.

"The ownership structure [of VCE] is evolving to recognize the agility of that size of organization," he said. "If the management structure evolves, that's probably a positive thing."

VCE said Wednesday it has exceeded a $2 billion annualized run rate for Vblock and Vblock-related products and services, and that its third fiscal quarter represents its sixth in a row where year-over-year growth has surpassed 50 percent.

JOSEPH F. KOVAR contributed to this story.

PUBLISHED OCT. 22, 2014