EMC Loses on Lack of Cisco Interest (EMC, CSCO, VMW)

EMC Corporation (NYSE: EMC) is having a rough day, yet it is on no news of its own.  The blame lies with Cisco Systems Inc. (NASDAQ: CSCO) after its earnings.  Is it competition?  Is it industry comments?  Is it fears of a rift growing?  No.  It is because John Chambers of Cisco said that he is not really in favor of very large acquisitions at this time and that he'd rather focus on smaller mergers.

The issue is that there have been some market rumors that Cisco wanted to acquire EMC for its storage solutions and storage client base so that it could grow its physical infrastructure presence further around the clouds of communications and technology infrastructure.  It turns out, just like many rumors, that the rumors based more on hopes than they were on any real meat.

At the forefront would have been the prized VMware Inc. (NYSE: VMW) which is still more than 80% owned by EMC.  At this point Cisco could have taken two paths.  It could have owned the virtualization platform.  After all, it did acquire roughly 1% of the company before the 2007 IPO of VMware.  The other issue is that Cisco could have sold off the entire stake to finance the buyout of EMC on top of EMC's cash.

For now, this all seems a moot point.  EMC shares are down almost 5% at $14.28 and Cisco stock is up almost 5% at $23.73.

Jon C. Ogg
August 6, 2008