Intel cuts VMware stake in half

Intel is reducing its stake in virtualization software maker VMware by half, putting millions of shares on the open market and selling 1 million shares to Cisco and EMC.

The company disclosed in a regulatory filing that, beginning Tuesday, it would place 3.75 million of its VMware shares on the market, although it said the exact timing was subject to change.

In addition, Intel Capital, the company's investments arm, sold 500,000 VMware shares to Cisco and another 500,000 to EMC on October 30, according to the filing. With a price of $26.52 per share, each transaction netted $13,259,400, for a total of $26,518,800, Intel said.

The combined sale of 4.75 million shares will cut in half Intel's previous stake of 9.5 million shares, purchased in a private transaction in July 2007, just before VMware's initial public offering. Intel paid $23 per share for that initial stake.

EMC bought VMware in 2004 for $625 million and retains a majority stake in the company.

Intel did not give a reason for the sale, but networking giant Cisco said its purchase of the shares was part of an increasingly close relationship between itself and VMware. Cisco's alliance with the virtualization company began in 2007 when Cisco made its initial $150 million investment in VMware, acquiring about 1.5 percent of the company. That stake is now increased to 1.7 percent, according to Cisco.

In September, at the VMworld conference in Las Vegas, Cisco and VMware launched the Nexus 1000V, a virtual switch jointly developed by the two companies, which will ship as part of VMware's Virtual Infrastructure suite. At the same time, Cisco showed its Virtual Network Link (VN-Link), designed to work with VMware's VMotion software.

Matthew Broersma of ZDNet UK reported from London.