Cisco plans to improve its standing in the data centre space after making an investment in Nuova Systems to accelerate next-generation product development in the data centre.
Cisco has committed certain technology and $50m of funding to Nuova Systems, with the possibility of up to $42m in additional funding in the future. As a result of Cisco's financial commitment, Nuova Systems will become a majority-owned subsidiary of Cisco.
The subsidiary will be approximately 80 per cent owned by Cisco, with the remaining 20 per cent interest held by employees of the subsidiary. Because of Cisco's majority ownership interest, the accounts of the subsidiary will be consolidated with the accounts of Cisco starting in fiscal year 2007.
As part of the agreement, Cisco has the option to purchase the remaining 20 per cent interest in this subsidiary. Should Cisco decide to exercise this option, the transaction would occur in late fiscal year 2008 or early fiscal year 2009. The potential payouts made under the call option are primarily based on the success of Nuova Systems' products sold through Cisco, with a minimum potential payout of $10m and a maximum total payout of $578m.
Nuova Systems' product development efforts will complement Cisco's current data centre product portfolio which includes the Catalyst 6500, Cisco's core enterprise networking platform, the MDS line of storage switches, SFS server networking switches and application networking solutions for accelerating applications within the data centre and to the rest of the enterprise.
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