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Cisco spins in data center start-up

Company announces a new data center switch and the purchase of Nuova Systems, which helped develop the technology.

Cisco Systems said Monday that it's added to its arsenal of data center technology with a new switch and the purchase of start-up Nuova Systems.

Cisco, which already owned 80 percent of Nuova, worked with the start-up to build the new Nexus 5000. On Monday, Cisco introduced the new switch, and also announced that it has bought the remaining 20 percent of the start-up.

Cisco announced its $70 million investment in Nuova in 2006. The company didn't disclose details of the current buyout. But in April of last year, it expanded its funding agreement and raised the maximum potential payout of the transaction to $678 million.

Cisco will continue to use the Nuova technology to further develop and expand the Nexus product line, a new line of data center switches the company introduced earlier this year. The first product in the line was the Nexus 7000. The Nexus 5000 will provide a smaller, fixed version of the product.

The new Nexus switches combine Ethernet switching, IP routing, storage, and security into a single device. And while these switches don't necessarily take over the functions of servers or storage area devices in the data center, they will allow companies to use their servers and storage devices more efficiently.

Cisco has spent more than two decades building its brand as a switching and routing powerhouse. Now, it is tackling the data center, where it hopes its Nexus products will dominate. These new switches are expected to become the next high-ticket item Cisco can sell to large companies to help fuel the company's growth. Cisco hopes the data center will be worth about $10 billion over the next five years, which means it is a key opportunity for a company that needs to grow at least between 10 percent and 15 percent a year to satisfy Wall Street.

But Cisco's move into the data center could pit it against some of its largest partners, such as IBM, Hewlett-Packard, and EMC. Cisco claims its products complement products from these companies. IBM and Hewlett-Packard are more server-centric. And EMC is more focused on the issue from a storage angle. Meanwhile, Cisco sees the intelligent network, with its Nexus 7000 sitting in the center, as the best answer for virtualizing the data center.

Still, competing with its partners is starting to become a familiar tune at Cisco, which has found itself also competing head-to-head with software giant Microsoft in some areas of its business.