Analysts: EMC Should Bring VMware Back In-House To Battle Cisco, IBM, HP

Wells Fargo Securities, in a report published Wednesday, said EMC should bring VMware back in-house to better compete with IBM, Hewlett-Packard, Cisco Systems and Dell in the coming converged infrastructure wars.

In the report, Wells Fargo analysts Jason Maynard and Maynard Um argued that reunification of EMC and VMware "is becoming more of a strategic imperative" due to the growing popularity of converged infrastructure -- which typically refers to products that combine storage, servers and networking with unified management -- and the friction it's causing in longstanding vendor partnerships.

"EMC and [VMware], in our opinion, should reunify to create a broader and more converged solution. In what appears, to us, to be a visible path for EMC to become more hardware-agnostic, the combined entities may be in a better position to offer a pure software-defined solution stack," the analysts said in the report.

[Related: EMC's Big Reveal: Will Ship Hyper-Converged Infrastructure This Year ]

EMC and VMware declined to comment on the report.

Earlier this month, EMC unveiled its "unique federation of strategically aligned businesses" made up of EMC storage, Pivotal big data technology, VMware virtualization and management software, and RSA security software.

While some industry watchers took that to mean EMC was moving to unite its various properties into a single company, EMC has said the Federation is a "loosely coupled" arrangement in which each company will retain its unique identity and mission.

However, Maynard and Um said EMC bringing VMware back into the fold in a more official and integrated way would give Hopkinton, Mass.-based EMC a technology arsenal on par with the major converged infrastructure players.

JP Morgenthal, director of cloud computing at Perficient, a St. Louis-based EMC partner, doesn't think bringing VMware back into the fold would be a good move for EMC right now.

Morgenthal, who was a cloud business director at EMC from 2012 until joining Perficient in February of this year, told CRN he thinks it's important for EMC, VMware and Pivotal to remain separate while the cloud computing market shakes out.

Once that happens, it'll be easier for EMC CEO Joe Tucci to decide which vendor should lead the go-to-market for the federated group of companies, said Morgenthal.

If EMC were to bring VMware in-house right now, it would be "a logistical nightmare’ because it could worsen existing conflict between the vendors’ account teams, he said.

"Lack of attention to certain customers from the VMware account teams often resulted in customer frustration being projected onto the EMC account teams, which caused contention in the field," said Morgenthal.

EMC also would have to redraw compensation plans and quotas, given the added requirements to drive VMware revenue in addition to the storage products, he added.

Another EMC partner told CRN that because VMware still does a lot of business with EMC competitors such as NetApp and HP, ending those relationships -- a likely scenario of reunification -- would be costly.

NEXT: How EMC And VMware Are Already Working Together On Products

EMC, which owns 80 percent of VMware, spun out VMware in 2007. Seven years later, the goals of an independent VMware, which includes attracting employees and ecosystem partners, have largely been met, Maynard and Um said in the report.

The analysts cited growing product collaboration between EMC and VMware as evidence that the companies are already moving in the direction of reunification.

EMC's recently unveiled Elastic Cloud Storage Appliance -- previously known by its code name, Project Nile -- combines EMC's ViPR software-defined storage technology with VMware management and orchestration software, and will be sold by both vendors, the analysts noted.

While it wasn't mentioned in the report, EMC and VMware's Project Mystic hyper-converged appliance, a combination of EMC hardware and VMware software that's slated to ship this year, is another example of the two vendors' increasing collaboration.

The analysts also pointed out that EMC is focusing more on delivering its storage products in software form, as evidenced by Project Liberty, its plan to turn its VNX midrange storage hardware into software that can run on commodity hardware. VMware already does this with its VSAN technology, which debuted in March.

Despite their close ties, EMC and VMware aren’t really integrated because their respective employees have no incentive to work with each other in collaborative fashion, the analysts said.

"While the close ties behoove the companies to work together, we believe a reunified company would have to allow for closer ties through, for example, direct employee compensation," the analysts said in the report.

PUBLISHED MAY 22, 2014