VMware Partners Bullish On EMC Virtustream Joint Venture, But See Uncertain Road Ahead

VMware is telling channel partners that its proposed cloud joint venture with EMC remains on track, despite uncertainty over the potential implications of Dell's $67 billion bid to acquire EMC, sources told CRN this week.

VMware CEO Pat Gelsinger predicted last month that the Virtustream joint venture -- which combines VMware's vCloud Air hybrid cloud service with EMC's Virtustream and other assets -- would become a top five global cloud service provider. CFO Jonathan Chadwick said the joint venture is expected to "become a multibillion-dollar profitable business."

Many VMware partners are eager to see if the cloud joint venture can slow down the Amazon Web Services juggernaut. At the same time, some partners are wary of these promises because of the many unanswered questions stemming from the Dell-EMC deal.

[Related: EMC, VMware Fire Shot Across AWS Bow With New Cloud Services Business Unit]

"It is clear that there remain several unknowns so far as the integration [of VMware and EMC's cloud assets] is concerned," said one VMware partner executive, who didn't want to be named.

VMware, in its 10-Q filing with the federal Securities and Exchange Commission on Nov. 9, listed a number of things that could scuttle its planned joint venture with EMC.

In the filing, VMware notes that while the combined company will be a 50/50 joint venture with EMC, "definitive agreements may contain terms materially different from those announced." VMware also notes that the joint venture, which is expected to close in January, isn't a done deal and might not happen at all.

VMware, in the filing, also describes the joint venture as a "combination of multiple businesses from VMware and EMC that may overlap and not yield expected synergies."

While the SEC requires these sorts of "risk factor" disclosures, the VMware partners told CRN they think the language in the filing is unusually detailed.

"VMware's message [to partners] is that they plan to move forward with this cloud play. But with language like this -- and until the Dell merger is approved, who knows?" said another VMware partner executive, who didn't want to be named.

A VMware spokesman told CRN that the vendor is merely adhering to SEC rules on risk factor disclosures in periodic public filings. "This should not be interpreted as anything more," the spokesman said of the 10-Q risk factors. "VMware remains committed to building the industry’s most comprehensive hybrid cloud portfolio with EMC."

Virtustream was a VMware service provider partner before being acquired by EMC, but it also competed with vCloud Air. Now, VMware executives are touting Virtustream's technology for running mission-critical apps in the cloud as a competitive advantage for the joint venture.

The three VMware partner executives believe this pitch could be a powerful draw for the Virtustream joint venture if and when it's approved. However, any further volatility with VMware shares, or delays in the closing of the joint venture, could dampen customers' enthusiasm, the partners told CRN.

VMware shares are down more than 25 percent since reports of the Dell-EMC deal surfaced Oct. 9. Shares dropped more than 14 percent on Oct. 21, a day after VMware announced the Virtustream joint venture and shared fourth-quarter guidance that included lower-than-expected revenue numbers.

"No one wants to invest in an OEM that is going to be distracted and too spread out on their investments, especially in the public cloud," said one of the VMware partner executives. "The difference is that VMware created the cloud market, [and] has too many other things at risk by not offering this public part of the hybrid cloud strategy themselves."

PUBLISHED NOV. 20, 2015