Cisco Systems Inc. announced an initial investment of $50 million in Nuova Systems Inc., making it a majority-owned subsidiary, to accelerate next-generation product development in the data center.

Cisco has committed certain technology and $50 million in funding to Nuova Systems with the possibility of up to $42 million in additional funding in the future. The subsidiary will be approximately 80 percent owned by Cisco, with the remaining 20 percent 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 percent 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 $10 million and a maximum total payout of $578 million.

Nuova Systems' product development efforts will complement Cisco's current data center 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 center and to the rest of the enterprise.