Cisco Systems Inc. (Nasdaq: CSCO) today acquired Topspin Communications Inc. (Nasdaq: CSCO) for $250 million in cash and options in an attempt to boost its data center story (see Cisco Buys Topspin for $250M).

Data centers are growing in complexity at the moment, and users are increasingly looking to share data across emerging technologies such as blade servers and computing grids. Cisco is now looking to meet this demand through Topspin's server fabric switches, which offer both virtualization and a range of interconnects, including the much-hyped InfiniBand.

David Freund, analyst at Illuminata Inc., believes the deal could give InfiniBand a much needed lift. With its low latency and high bandwidth, the technology was seen by some industry experts as ideal for certain data center applications and storage interconnects. However, most organizations find Fibre Channel adequate for their storage needs, and InfiniBand has so far been consigned to supercomputing clusters.

”It would seem to indicate that Cisco is treating InfiniBand as something with real potential,” says Freund. Today’s deal could prove a watershed event, he adds, providing a major impetus to the rollout of InfiniBand technologies.

Then there is Topspin’s virtualization, which Freund also identifies as a key part of the deal. Topspin’s ability to virtualize a range of data center technologies has been attracting a great deal of attention over recent months, and there has been speculation that the firm could get snapped up by a larger vendor or even go for an IPO (see VC Predicts Virtual Upheaval and IPO Talk Twirls Around Topspin).

”It gives Cisco a good virtualization story. One of the things that Topspin is good at is hiding the fact that you are crossing protocols to get to a network target,” says Freund. “You could have a server on InfiniBand that has connections to Fibre Channel disk arrays without having to bother with the Fibre Channel card."

Peter Wagner, a managing partner with Accel Partners, one of Topspin's investors, agrees, saying Topspin instantly gives Cisco a virtualization story. "Cisco for a long time was a bystander in virtualization and now they're one of the leaders. It's getting a very strategic asset in [Topspin's] OEM partners."

The deal could also open the door to better interoperability among the major data center vendors in the future, with Cisco potentially in the driver's seat. Topspin has already announced partnerships with IBM Corp. (NYSE: IBM), Dell Computer Corp. (Nasdaq: DELL), Sun Microsystems Inc. (Nasdaq: SUNW), and Hewlett-Packard Co. (NYSE: HPQ). (See Topspin Tangos With Dell , Topspin, Sun Add Grid Solutions, and IBM Puts Topspin on BladeCenter.)

” 'Interoperate' is the key word here,” says Freund. "Cisco’s play here is not just to be a part of the various [network] fabrics but to be the unifying fabric.”

Whether these other vendors opt to make similar purchases of their own remains to be seen. Startups Voltaire Inc. and InfiniCon Systems Inc. are still playing in this space.

Founded in 2000, Topspin amassed $70 million in funding and was regarded as one of the hottest data center startups. Its most recent funding round was led by Meritech Capital Partners; other investors include Accel Partners, Advent International, Duff Ackerman & Goodrich LLC (DAG), Presidio Venture Partners LLC, and Redpoint Ventures.

The transaction is expected to close during Cisco’s fiscal fourth quarter, which ends on July 30 this year. According to a statement released by Cisco this morning, Topspin will join the networking firm’s Data Center, Switching, and Wireless Technology Group, led by senior vice president Luca Cafiero.

— James Rogers, Site Editor, Next-Gen Data Center Forum