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Report: Cisco, EMC to form services joint venture

The Wall Street Journal said Thursday that the tech giants are in talks to create a new services company that would push their products in the data center.

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.