VMware was surprised to find out that its biggest rival, Cisco, owned 5% of its company


VMware CEO Pat Gelsinger


Pat Gelsinger

Cisco and VMware, two huge tech rivals, had a showdown of sorts this week.


In one corner, VMware had its huge customer conference, VMworld, where over 23,000 people descended on San Francisco. One thing they heard: how VMware plans to unseat Cisco as king of the network industry.

In the other corner, Cisco had its huge Global Sales Experience expo in Las Vegas where it pumped up its 20,000-strong salesforce to go out and sell (and beat VMware).

In a pre-show interview with Business Insider, VMware CEO Pat Gelsinger said that among VMware's several up-and-coming new billion-dollar-potential businesses, he's most excited about the NSX product, the one that competes with Cisco.

"This is an industry that has been operating essentially under the same architecture for 25 years," Gelsinger told us. He described NSX as "radical."


NSX came from VMware's $1.25 billion acquisition of a startup called Nicira a few years ago in which VMware outbid Cisco for the startup, and in the process destroyed Cisco's relationship with its once-close partner, EMC. (EMC is VMware's parent company.) Cisco's John Chambers has been trash talking VMware and the Nicira deal ever since.

This week, Gelsinger basically told Network World that Chambers held a grudge against EMC CEO Joe Tucci, because of that acquisition.

Cisco John Chambers and EMC Joe Tucci


Former buddies Cisco CEO John Chambers (left) and EMC CEO Joe Tucci.

"In the relationship between Joe [Tucci, EMC CEO] and John, this was a very emotional point between them. I am personally anxious for and looking for a much more collaborative relationship with Chuck [Robbins, new Cisco CEO] because this was a deeply personal issue between John and Joe that emerged."

And there's a good reason that Gelsinger wants to make friends with Robbins. While the two companies duke it out in the marketplace, Cisco has been quietly buying a huge stake in VMware.

A bigger stake than VMware knew about.


A month after VMware released its annual proxy statement earlier this year, VMware had to update it, because it "became aware" that Cisco now owns over 5% of VMware, 6.5 million shares, VMware said.

That stake doesn't give Cisco enough voting rights to say, overthrow VMware's board and make VMware kill the NSX product. But an activist investor is trying to get a troubled EMC to sell off VMware. And if that investor wins, Cisco is sitting pretty.

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