Cisco Takes Stake in VMware

Cisco Systems (CSCO) on Friday announced plans to buy a $150 million stake in VMware as the network technology giant looks for ways to integrate virtualization software into its hardware products.

The deal gives Cisco an entree into the research and development labs of the company that has become synonymous with fast-growing market of virtualization software. The two companies will join forces to develop and market products.

Cisco may also get a seat on the board of VMware, which is planning an initial public offering this summer. After the transaction, Cisco will hold about 1.6% of VMware, a subsidiary of data storage device maker EMC (EMC).

Cisco's interest in VMware underscores the growing influence of virtualization. Earlier in the week, EMC reported that VMware's second-quarter sales surged almost 90% to $298 million, making it the fastest-growing business unit within the company.

Shares of Cisco were off 38 cents, or about 1.3%, to $29.29 midday. Shares of EMC lost 7 cents, or 0.4%, to $18.32.

Virtualization software carves up server processing power into individual slices. Each slice handles a different task, such as payroll processing or email. This lets a single server handle functions that were previously handled by many.

Virtualization is also used for data storage. It lets multiple devices on computer networks find and use idle capacity on the same storage appliance. This limits the number of storage units that companies must purchase, and it cuts down on the staff required to operate them.