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VMware, Inc. (VMW - Free Report) has finally confirmed its strategic partnership with rival Amazon.com’s (AMZN - Free Report) Amazon Web Services (AWS).

Rumors regarding this deal have been doing the rounds for the past few days leading to speculations regarding the details and scope of the agreement.

The two entities are getting together to offer an integrated hybrid cloud solution, functioning much like a software-defined data center (SDDC). This contract will enable users to run VMware software (vSphere, Virtual SAN and NSX) on the Amazon cloud apart from the internal servers. The company stated that the new solutions will likely be available by mid-2017.

Per the press release “Delivered, sold, and supported by VMware as an on-demand, elastically scalable service, VMware Cloud on AWS will allow VMware customers to use their existing VMware software and tools to leverage AWS’s global footprint and breadth of services, including storage, databases, analytics, and more.”

The move comes at a time when VMware is strengthening its place in the virtualization server market. It is expanding its expertise from just servers to now include networking and storage as well. Enabling software support on cloud is a positive as many enterprises now prefer public cloud platforms like Amazon, Microsoft and Alphabet’s (GOOGL - Free Report) Google over internal servers to optimize costs while maximizing flexibility.

In Feb 2016, VMware entered into a similar deal with International Business Machines Corporation (IBM - Free Report) . The contract enabled VMware’s VSphere customers to initiate workloads on the IBM SoftLayer cloud infrastructure.

With such partnerships, VMware is placing itself well to benefit from the increasing adoption of cloud-based solutions. Per a Gartner report, global spending on cloud technology is expected to increase 25% annually over the next few years, which will result in higher demand for virtualization capabilities.

Currently, VMware has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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