VCE Losses For Cisco, EMC & Investors: Around $228 Million?
The VAR Guy continues to hear from partners who suggest VCE — the startup funded mainly by Cisco Systems and EMC — is undergoing a reorganization. A spokeswoman for VCE on August 15 said company officials were traveling for the next two days and were not available for immediate comment. The VAR Guy estimates EMC, Cisco and other investors have lost a combined $228 million on the VCE effort so far — though an EMC SEC filing suggests “momentum continues to build” for VCE. Here’s a look at The VAR Guy’s math… and VCE’s importance to channel partners.
First, a little background: VCE strives to organize storage, compute, virtualization, networking and management into an integrated solution. Key investors include Cisco, EMC, VMware and Intel. But it sounds like EMC and Cisco are VCE’s biggest financial backers.
- An August 2011 SEC filing says EMC owns roughly 58 percent of VCE’s outstanding equity.
- A May 2011 SEC filing says Cisco owns roughly 35 percent of VCE’s outstanding equity.
Overall, The VAR Guy agrees with VCE’s vision — many data center partners welcome the concept of an integrated, standardized data center solution from Cisco, EMC and VMware. The proposed VCE solution, Vblock, cloud help partners and customers to more rapidly deploy public and private clouds.
SEC Filings Reveal Some Math
But how much will it cost Cisco and EMC, in particular, to fulfill VCE’s vision?
According to an August 2011 SEC filing from EMC:
- As of June 30, 2011, EMC has contributed $173.5 million in funding and $7.8 million in stock-based compensation to VCE since VCE’s inception.
- EMC’s net accumulated loss from VCE is $132.3 million.
Cisco’s VCE-related funding efforts are less clear, at least for the moment. The networking giant will likely provide some clarity when Cisco’s latest quarterly filing debuts on the SEC web site; Cisco announced quarterly earnings on August 10 and the related SEC filing typically debuts a few days after such an announcement.
Estimated VCE Losses to Date
In the meantime The VAR Guy has been doing some quick math based on EMC’s SEC filing.
- Calculation One – How Much Has Cisco Lost?: If EMC’s 58 percent stake in VCE has generated a $132.3 million net loss, then Cisco’s 35 percent stake in VCE is likely worth a $79.8 million net loss to Cisco. (The math: 35 X 132.3 / 58 = 79.8).
- Calculation Two – VCE’s Estimated Total Loss to Date: Using the first calculation, Cisco and EMC have a combined 93 percent stake in VCE, representing roughly $212.1 million in total VCE losses ($79.8 million + $132.3 million) so far. Extend that math to the 100 percent ownership pie, and VCE apparently has lost about $228 million as of June 2011.
Of course, The VAR Guy’s math makes some risky assumptions that could be wrong. For instance, The VAR Guy assumes the Cisco and EMC percentage ownerships in VCE have not fluctuated, and each percentage point of ownership likely represents an equal amount of net loss. Still, there’s always the chance that Cisco and EMC may have increased or decreased their ownership stakes as other investors (example: Intel) joined the party.
Even if you dismiss The VAR Guy’s extended math, EMC has confirmed that its 58 percent stake in VCE has generated a $132.3 million net loss for EMC so far. So it’s safe to assume Cisco’s 35 percent stake in VCE is generating tens of millions in losses as well.
Barring a change of direction it sounds like the losses will continue. Back in that May 2011 SEC filing, Cisco indicated “over the next 12 months, as VCE scales its operations, [Cisco] expects that it will make additional investments in VCE and may incur additional losses, proportionate with the Company’s ownership percentage.”
Maintaining a Long-term View?
That said, keep in mind: It often takes technology startups numerous years to turn a profit.
In the meantime, is VCE meeting financial expectations set mainly by EMC and Cisco? EMC, for one, sounded upbeat in its August 2011 SEC filing, stating: “momentum continues to build at VCE Company LLC, our joint venture with Cisco and investments from VMware and Intel, which offers the Vblock converged infrastructure product for building out cloud data centers.”
Still, nagging rumors about VCE organizational changes continue. And as of August 15, VCE executives were traveling for the next two business days and not available for comment, according to a spokeswoman for the company.