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Cisco Systems, EMC, and VMware announced Tuesday a joint venture to sell a new integrated data center product.

The venture will sell and provide maintenance and service support for the product, which is called V-Block. It will combine EMC's storage equipment, Cisco's virtualized servers and networking equipment, and VMware's virtualization technology.

The deal had been rumored since September, when the Wall Street Journal reported the companies were working on a collaborative effort code-named Alpine. Talk of the deal heated up late last week and early this week.

The joint venture will market and provide maintenance for the product. But the cloud infrastructure will be built by all three companies.

Cisco and EMC already have a partnership to collaborate around Cisco's new data center platform, which the company calls Unified Computing. And EMC owns nearly 85 percent of VMware.

The companies will provide more details about the joint venture during a press call scheduled for 8:30 a.m. PT.

Cisco Systems, EMC, and VMware are expected to announce this week a new joint venture to sell data center products and services using virtualization technology, according to report in the Wall Street Journal.

The new products called "V-Block" combine EMC's storage equipment with Cisco's new virtualized services and networking equipment along with VMware's virtualization technology.

In September, The Wall Street Journal reported that Cisco and EMC were in talks to form a new services venture code-named Alpine. V-Block may be this same service.

The products will either be sold as an end-to-end solution that companies can install in their own data centers, or customers will have the option of subscribing to a virtualized service, according to reports.

Cisco has been reselling EMC storage gear for years. It also owns a stake in virtualization software company VMware, which operates as a unit of EMC. So it makes sense that the companies would team up on a new services venture.

Earlier this year, Cisco announced a new data center architecture it calls Unified Computing, which includes new virtualized servers. It also includes coordinated support and software integration from partners such as Intel, Microsoft, EMC, and VMware.

Cisco sees the data center market as a multibillion-dollar opportunity. The company anticipates a greater need for storage and high-speed networking within data centers as more services and content come online. Cisco's corporate customers have also begun to virtualize their data centers to make those operations more efficient.

The joint venture will have its own CEO, according to the Journal.

Representatives from Cisco, EMC, and VMware have declined to comment.

The new joint venture is expected to be announced Wednesday before Cisco releases its fiscal first-quarter results.

Network equipment giant Cisco Systems is feeling good enough about the economy to rev up its acquisition engine, pledging to spend more than $6 billion in a single month on smaller companies.

Cisco on Tuesday announced its third acquisition this month and its sixth acquisition so far this year. The company said it plans to buy Web-based security software company ScanSafe for about $183 million in cash.

Two weeks ago the company announced plans to buy wireless equipment maker Starent Networks for $2.9 billion. And at the beginning of the month, it said it would buy Norwegian video conference equipment maker Tandberg for $3 billion

After a brief acquisition hiatus the past year during the economic downturn, Cisco is back in the merger and acquisition saddle. In all of 2008, Cisco bought five companies, all well below the $1 billion price tag. In 2007, it bought a total of 11 companies, including the $2.9 billion purchase of WebEx.

(Credit: Vibol Peou/CNET)

Cisco's eagerness to get out its checkbook again, indicates two things. First it shows that Cisco, which had about $35 billion in cash as of the end of July, is confident enough in the stability and recovery of the economy that it can make some big purchases. And second, it's a good sign that Cisco is seeing some good deals, as the economic downturn has likely depressed the value of many potential acquisition targets.

"Cisco has a lot of cash," said Zeus Kerravala, a senior vice president at Yankee Group. "And it's definitely a buyers' market out there today. If you look at the timing and the amount of money it's spending, I think you can definitely say the company is feeling better about spending that cash now than they were earlier this year or even last year."

Tech bellwether
Cisco, which makes equipment that powers the Internet and most corporate networks around the world, is seen as a bellwether in the tech industry. Because the company's products are used by almost every large company, government entity, broadband and telephone service provider, and thousands of small and medium businesses around the globe, the company has a strong pulse on the economy and technology spending in general.

The company's CEO John Chambers is viewed as somewhat of a technology oracle. And investors listen carefully to what he says and the tone of his comments for hints at what to expect from other companies in the technology sector. Cisco was one of the first companies, well over a year ago, to see the economic downturn coming. The company had noted a slowdown in spending from some of its biggest corporate customers in the U.S. and Canada.

And during the company's most recent quarterly earnings conference call in August, Chambers said he was optimistic that the economy, at least in the U.S., was starting to improve.

"We saw a number of positive signs in the economy and in our business over the fourth quarter," Chambers said during the call in August. "It's still early, but if we continue to see these positive trends in one or two more quarters, there's a good chance we say the tipping point occurred in the fourth quarter."

Specifically, Chambers said he saw orders for new products reverting back to normal trends in the company's fourth fiscal quarter. And he said he was starting to see sequential growth again.

It would appear that the positive trends that Chambers saw in the fourth quarter are continuing in the first quarter, as Cisco now feels confident enough to make some big purchases.

This is important because during the company's 25-year history, Cisco has traditionally grown its business through acquisition. During the dot-com and telecom boom times, Cisco was one of the biggest acquirers in the technology industry. In 1999, it spent roughly $14 billion on 18 companies, including nearly $7 billion on optical networking start-up Cerent. In 2000, it spent about $12.5 billion on 28 deals.

After the bubble burst, the company's M&A activity was relatively light until 2005, when it bought Scientific Atlanta for $6.59 billion. In 2005, Cisco spent a total of about $7.7 billion, the most money it had spent in one year on acquisitions. With two months left in 2009, Cisco is getting close to breaking that record this year.

As the company attempts to get into new markets like video conferencing, data center, wireless, and consumer products, it is acquiring companies that meet its strategic needs. Chambers has repeatedly talked about the importance of investing during a downturn to position the company growth when the economy returns.

Cornering new markets
ScanSafe is a cloud-based software service that allows customers to license applications on demand. The company said ScanSafe's technology will help Cisco expand on capabilities it added when it bought IronPort in 2007. Cisco also plans to integrate ScanSafe's service with its AnyConnect VPN client to provide a secure mobility solution. And Cisco will use ScanSafe's data centers to provide new cloud security services.

The ScanSafe acquisition is small compared to the other two big acquisitions this month, but Kerravala said it's still very important from a strategic standpoint.

"This acquisition is more aligned with what Cisco is doing in the cloud and in the data center," he said. "The biggest barrier to cloud computing and services is security. So this fits in nicely with Cisco's cloud, data center, and borderless enterprise initiatives."

But the hefty price tags that the company is paying for larger more established companies, such as Starent and Tandberg, suggest Cisco is also looking for a kick-start to jump into new markets like video conferencing and the data center. This is especially important as it goes head-to-head with large competitors, such as Hewlett-Packard and IBM. These deals not only help Cisco compete more aggressively, they help it deliver the growth and performance that Wall Street expects from the company.

That said, Cisco probably wouldn't have considered these big acquisitions if it didn't feel like the economy was returning to normal.

"In a down market, I doubt they'd look for these big deals," Kerravala said. "Now with things coming back, it looks like Chambers thinks the timing is right. When you are being asked by Wall Street to grow 10 to 15 percent each quarter and you're as big as Cisco is now, you have to make big deals to sustain that kind of growth."

Through its latest acquisition offer, Cisco Systems is hoping to grab a bigger slice of the growing video communications market.

Cisco announced Thursday that it will offer $3 billion in cash to acquire Tandberg, a global supplier of video communications equipment.

Based in Oslo, Norway, and in New York, Tandberg provides video networking hardware and software to a wide range of companies looking for teleconferencing and telepresence systems. Tandberg's products range from low-cost desktop tools to high-end conferencing systems.

Cisco has already wet its feet in the worlds of video and telepresence. Two of Cisco's many acquisitions in the last several years--Scientific-Atlanta and Arroyo--furthered the company's grasp of this segment.

But as video becomes increasingly important to enterprise customers, the network giant wants to carve off a greater piece of the multibillion teleconferencing market by integrating Tandberg's technology with its own.

"Cisco and Tandberg have remarkably similar cultures and a shared vision to change the way the world works through collaboration and video communications technologies," Cisco CEO John Chambers said in a statement. "Collaboration is a $34 billion market and is growing rapidly--enabled by networked Web 2.0 technologies."

Once the deal is done, Tandberg CEO Fredrik Halvorsen will lead the new TelePresence Technology Group, reporting to Marthin de Beer, senior vice president of Cisco's Emerging Technologies Group. Cisco said that Tandberg's 1,500 employees will be "extremely important" in fostering growth and innovation for Cisco's video team.

Under the agreement, Cisco will launch a cash tender offer to buy all the outstanding shares of Tandberg for 153.5 Norwegian kroner ($26.45) per share, which comes to a total price of approximately $3 billion. The offer represents a 25 percent premium to the three-month average closing price for Tandberg stock. The proposal has already been unanimously recommended by Tandberg's board.

Subject to the usual regulatory scrutiny, Cisco expects the deal to close during the first half of 2010.

Networking giant Cisco Systems and storage area networking company EMC may be teaming up to form a new joint venture to provide technology services to big companies, the Wall Street Journal reported Thursday.

Citing unnamed sources who have been briefed on the plans, the Journal story said the new joint venture, code-named Alpine, would target large businesses and would focus on installing Cisco server and networking gear and EMC storage equipment into data centers.

It's unclear when the joint venture might be announced, according to the newspaper. So far, Cisco has declined to comment on the speculation. And an EMC spokesperson provided a statement to the WSJ reiterating that the companies have always been close partners and will continue to be in the future.

Indeed, Cisco has been reselling EMC storage gear for years. Cisco also owns a stake in virtualization software company VMware, which operates as a unit of EMC. So it makes sense that the companies would team up on a new services venture.

What's more, Cisco has been making a big push into the data center market. Earlier this year Cisco announced a new data center architecture it calls Unified Computing. This new architecture includes new hardware from Cisco, namely blade servers, an interconnection "fabric," a chassis for the blade servers, fabric extenders and network adapters. It also includes coordinated support and software integration from partners such as Intel, Microsoft, EMC, and VMware.

Cisco sees the data center market as a multibillion-dollar opportunity. The company anticipates a greater need for storage and high-speed networking within data centers as more services and content come online. At the same companies are starting to virtualize their data centers to make those operations more efficient.

Cisco and EMC each already have service businesses of their own. EMC generated about $4.8 billion in revenue in 2008 from its services business, according to the Wall Street Journal. This was about 32 percent of the company's overall revenue.

The Journal also said that Cisco's services business generated about $7 billion to the company's coffers in fiscal 2009, which was about 19 percent of total revenue.

Most of the services that Cisco provides are for products that have already been sold. But the new joint venture would be different because it would entail designing and implementing products to fit into a data center. And as data centers become more complex, it makes sense that Cisco and EMC would want to develop a service to help customers design a data center that would use their products.

Traditionally, Cisco has relied on partners such as Hewlett-Packard and IBM to provide these services and help sell its gear to customers. But with the introduction of Cisco's new data center server products, Cisco's partners are looking more like competitors.

The move to create a services business looks to be part of Cisco's overall strategy to diversify its business. The company's bread and butter remains providing routers and switches to large companies and service providers to power the Internet. But over the past couple of years the company has begun to move aggressively into new areas like IP telephony, videoconferencing, and consumer electronics and home networking gear.

Cisco has also dipped its toe into other services markets. For example, with the acquisition of WebEx, the company now offers corporate users a hosted collaboration service. It has also recently launched a hosted Web service it calls Eos that allows media and entertainment companies to create, manage, and grow online communities by providing tools to create Web sites.

Another round of employees at Cisco Systems reportedly got pink slips Thursday, as the company laid off several hundred employees as part of its plan to cut costs and realign its business.

The Wall Street Journal reported Friday that between 600 and 700 Cisco employees were laid off at the company's headquarters in San Jose, Calif. The company also cut jobs at branch offices in other parts of the U.S. The Wall Street Journal cited sources close to the company.

A spokesman for the company told the Wall Street Journal that Cisco was "doing everything possible to minimize the impact on employees affected by the limited restructuring."

Like all companies, Cisco, which makes networking equipment that runs the Internet and provides communications for large companies, has seen sales slump as a result of the global recession. The company said earlier this year that it would likely cut between 1,500 and 2,000 jobs as it realigned its business to focus on newer more profitable business segments. The cuts were expected to be completed at the end of the company's fiscal year, which ends this month.

In February, Cisco said it cut about 250 jobs at its San Jose headquarters. Cisco had 66,558 employees at the end of April. Despite the cuts, Cisco's CEO John Chambers has said publicly that he believes the worst of the recession is over. But he noted that it could take some time before spending returns to high levels. Wall Street will be watching the company's next earnings call very carefully to see signs that the bottom has been reached. Cisco will report fiscal fourth quarter and end of year earnings on August 5 after the market closes.

As Cisco Systems adds more functionality to its online WebEx conferencing service, it's ratcheting up the competitive pressure against partner and rival, Microsoft.

Cisco held a press event Tuesday to discuss how it plans to add more to its WebEx service. As the company includes more software into the conferencing service, it is competing more intensively and directly with one of its major partners, Microsoft.

"As Cisco expands this business, the co-opetition between Cisco and Microsoft will only increase," said Zeus Kerravala, an analyst with Yankee Group. "Microsoft is strong on the desktop and Cisco is taking a lot of these software functions into the cloud."

WebEx is a leading Web conferencing service that Cisco bought in 2007. This was Cisco's first foray into offering a service. And the product has been very successful. As a result, the company has used the service as the foundation for its emerging big business collaboration tools. Cisco has also recently bought two other companies that it plans to feed into the service.

Primarily, Cisco is adding more unified communications functionality to the service it calls WebEx Connect. This is an extension of the Web-based video conferencing service that also includes instant messaging and presence. Using technology from Jabber Cisco will add even more presence functionality. And through the acquisition of PostPath, it will add e-mail into the mix.

Cisco already competes with Microsoft in the unified communications market. In fact, the two companies are strong rivals here. But Microsoft has had an advantage over Cisco with its strong presence on the desktop.

Now Cisco is taking these services into the "cloud," where the company can leverage its existing expertise with WebEx to provide a virtual solution for its corporate customers.

But Cisco isn't just stopping with unified communications. The company is also in the early stages of offering document, spread sheet, and presentation creation and sharing as part of WebEx. These are very clearly areas where Microsoft has a strong foothold and a very strong business. The company's Office suite, which includes Word, Excel, and PowerPoint, is part of its business productivity portfolio. And Microsoft makes a lot of money from this software, about $60 billion of its sales during last fiscal year came from these products.

But Alex Hadden-Boyd, director of marketing for the collaboration software group at Cisco says that Cisco has no intention of going after Microsoft's core Office business. Instead, she said that Cisco is more interested in providing collaboration tools online that groups can use to create and share documents, spreadsheets, and presentations.

"If you look at WebEx Connect today, we already have the beginnings of this," she said. "We have team spaces with shared files and wikis. So we are already well on our way down that road. But we are not focusing on productivity applications or individuals such as re-creating Excel or PowerPoint."

"We are using our existing resources and we have no intention of creating the next Word application for individuals," she added. "We simply are trying to make it easier for work groups to share documents in a team space."

Yankee Group's Kerravala agrees that it doesn't make much sense for Cisco to try to compete against Microsoft's Office products at the desktop level.

"Cisco is not going to take on Microsoft head-to-head on the desktop," he said. "And the reason is simple. They know they'd lose. But Cisco has invested in the cloud and service technology that allows them to approach it differently."

That said, Hadden-Boyd said she does see competition increasing between Cisco and Microsoft in the overall collaboration market. She said the two companies will continue to compete aggressively in collaboration software such as IM and conferencing. Microsoft already offers IM and conferencing and is working on Web-enabling its Office applications.

But Cisco could some day compete head-to-head with Microsoft's email Exchange platform with its new e-mail service from PostPath.

"We could see that as a possibility," Hadden-Boyd said. "We could see businesses using PostPath for e-mail instead of Exchange."

As for the online collaboration market, Cisco and Microsoft aren't the only ones developing solutions. Google also offers document creation and sharing online. But so far those services haven't gotten much appeal outside of the individual consumer market. And it has yet to take shape in the enterprise market.

"Google is the wild card here," Kerravala said. "People are expecting Google to get into the enterprise market. And I see it possibly taking off with a younger kind of worker. But Google has never monetized anything outside its advertising revenue. So it will be interesting to see."

Networking company Cisco has introduced a package of data center tools for carriers wishing to deliver cloud services over next-generation IP networks.

The Unified Service Delivery package, announced on Tuesday, combines Cisco's existing Unified Computing System technology with its Nexus 7000 switch--an updated, data center-optimized version of its CRS-1 router--and the company's next-generation IP products.

The combination will make delivery of video and data services more efficient and lay the groundwork for the delivery of business applications to any place, according to Cisco.

"The unification of the data center and the IP next-generation network is a natural progression, not just in the evolution of networking--it also builds the foundation for innovative service providers...to optimize their networks towards delivering new revenue-generating, cloud-based services," Kelly Ahuja, general manager in Cisco's service provider routing technology group, said in a statement.

The new CRS-1 Carrier Routing System integrates two 10Gb modules and a 40Gb forwarding processor, all designed to handle virtualization from the data center over next-generation IP networks. The CRS-1 modules, when used in the Unified Service Delivery package, will allow providers to virtualize traffic and network operations on a per-service or per-customer basis, Cisco said.

Cisco said that the Unified Service Delivery package will allow for greater power efficiency compared with "traditional" data center needs and so will cut costs.

The announcement builds on Cisco's Unified Computing System, a grand plan for next data centers launched in March. At the heart of the system is the idea of providing a single cohesive "architecture"--or set of products and services--for data centers. It combines computing, networking, virtualization, storage access and management components with its own blade servers.

Tom Espiner of ZDNet UK reported from London.

Updated 5:37 p.m. PDT Comments and analysis added from Cisco's conference call.

Cisco Systems reported quarterly losses on Wednesday, but the company still managed to beat Wall Street analyst expectations as its CEO cautiously reported that business customers are feeling better about the economy.

Based on non-GAAP, or non-generally accepted accounting principles, the networking equipment maker reported earnings of 30 cents a share on sales of $8.2 billion. Analysts had expected the company to report earnings of 25 cents a share on revenue of $8.1 billion.

Cisco said sales of its products were down about 17 percent during the quarter due to the sagging economy, but that the company was able to manage through the difficult quarter and post better-than-expected earnings results due to strict cost cutting during the quarter. CEO John Chambers said that revenue for next quarter, the company's fiscal fourth quarter, will likely decline at the same rate. Specifically he said he anticipates revenue to be down between 17 percent and 20 percent compared with the same quarter a year ago. But he said that he is finally seeing signs of hope that the gloomy market could be turning.

"For the first time in many quarters, many global customers are describing business in a different way," Chambers said during the company's conference call with analysts and investors. "They are seeing stabilization, finally having something reasonably solid beneath their feet."

Still, Chambers cautioned that it is difficult to say that the economic downturn had hit bottom. He said that things could get worse again, and he added that Cisco's business customers expect results for the entire year to be lower compared with the previous year.

"I'm not calling this the bottom or the beginning of an upturn," he said. "But things have to level out before they can go up. It will take a couple of quarters to turn things around. I don't think it will happen all at once. It will be gradual. (But the situation) feels better now than it did a quarter ago."

Chambers added that "a month and a half ago people were the most pessimistic I had ever seen them."

Still, he said that an economic upturn is on the way. And when it happens, he believes Cisco is positioned to take advantage of it. The company has been aggressively investing in 29 new markets that Chambers says are adjacent to Cisco's core routing and switching markets. These include things, such as data center computing, video products, and the consumer market.

"No one knows for sure when an upturn will occur," he said. "But we are being aggressive to get ready for when it does happen."

As Cisco invests, it's also working hard to cut costs. And Chambers applauded his management team and all of Cisco's employees for pinching pennies and executing on important product launches. Some of the cost cutting that has helped Cisco save money comes from curtailing hiring and merging offices. The company also cut about $400 million from its travel budget by using its own telepresence and other Web 2.0 tools to hold meetings and collaborate remotely.

Chambers used himself as an example of how the company has used telepresence. He said that he made 262 customer visits around the globe during the quarter. About 200 of those meetings were done virtually using Cisco's telepresence equipment. In total, Cisco employees participated in 4,700 telepresence meetings during the quarter

Chambers said that Cisco's customers also see the value in telepresence, and he reported that sales of telepresence gear grew by 70 percent during the quarter compared with last year. He also said that about six customers already have more than 50 telepresnce units, and some are talking about installing hundreds of systems.

Telepresence uses giant TV screens and high-speed Internet connections to create a fully immersive video conferencing experience that allows callers to sit across a table from each other and feel like they are in the same room. The systems cost hundreds of thousands of dollars each, but they help companies reduce travel expenses.

As Cisco moves forward, Chambers is confident that the company will be able to continue aggressively investing in new businesses, while tightly managing its expenses. So far, it looks like the company has done a good job of this. But as Cisco digs deeper into new markets, I wonder if the company is spreading itself too thin.

Cisco is also facing stiff competition in one of its core markets, Ethernet switching. IBM has recently gotten into the market using equipment from a new partnership with Cisco rival, Brocade. And Hewlett-Packard is also starting to take market share from Cisco in the low-end switching market. These companies that had once been major Cisco partners are now turning into high-stakes rivals. Chambers said he is confident the company can hold its strong standing in the market. And he added that he isn't worried about turning partners into competitors.

"Some of our past partners will be partners in the future," Chambers said when asked about the increasing co-opetition between Cisco and IBM and HP. "But as we go into new areas, some won't be. When you think of us moving into 29 adjacent markets and you think of all the different partner sets, that's a broad range companies. So there will be times when some partners say that we're a little too close (to what they do.) And there may be times when we say it."