Cisco and VMware: This Is a Hug, Not a Marriage

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When Cisco Systems (Nasdaq: CSCO), EMC (NYSE: EMC), and VMware (NYSE: VMW) announced a joint press conference, it was easy to imagine a high-octane merger.

Cisco's $3 billion bid for Norwegian video conferencing expert Tandberg doesn't look likely to happen, but Cisco is clearly a hungry buyer these days. With an enterprise value of $31 billion, EMC would be a massive meal for ultra-rich Cisco, but not impossibly large. And when Berkshire Hathaway (NYSE: BRK-B) is buying Burlington Northern Santa Fe (NYSE: BNI) -- one of the four major American railroads -- anything seems possible.

But Cisco isn't going to that extreme here. Instead, it is forming a cloud computing partnership with storage expert EMC and its virtual computing underling, VMware. The Acadia joint venture and Virtual Computing Environment coalition will push all-in-one packages of products from all three companies, with the intention of making it easy to install a high-quality virtual computing environment in your data center.

The coalition addresses a market that should grow to $85 billion of annual sales in the next five years. Competitors include IBM (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ). Both HP and Big Blue are big names in enterprise-class server systems and have been bolstering their cloudy credentials by service-oriented acquisitions over the last couple of years.

This coalition takes a different angle at the same market, hoping to become a one-stop shop for large virtual installs but then handing off day-to-day support to the customer or to one of the many IT service businesses out there.

The Wall Street Journal notes that the coalition's "targeted approach will allow the companies to maintain tight relationships with independent consulting companies, which may have been jilted when rival equipment makers bought services providers." Maybe that makes up for Cisco jilting system partners like IBM and HP when it started selling its own servers.

If this EMC partnership was in the cards back then, I suppose today's announcement explains why Cisco ventured to step on its reseller partners' toes -- there was another major partnership in the works, and Cisco might feel that this one is a bigger opportunity.

We shall see. On balance, Cisco is out of my doghouse again, but I'm still not exactly drooling over the stock. How does this coalition change your thinking about Cisco, EMC, or VMware -- if at all? Let us know in the comments below.