Sources: No Good From EMC VMware Sale, Won't Happen Anyway

Speculation that EMC may be actively exploring a sale of VMware now appears to be only a rumor.

That will be a relief to EMC's channel partners who say that, while a sale of VMware by EMC might be good news for VMware, it would likely have a chilling effect on the IT industry and on EMC because of the lack of independence VMware would face as part of another vendor.

The New York Post reported Thursday that EMC has "decided to explore selling its stake in VMware." That follows a July Wall Street Journal report that said EMC's fifth-largest investor, Elliott Management, was reportedly pushing EMC to spin off VMware as an independent company.

[Related: EMC's Tucci Addresses Question Of Potential VMware Spinoff On Q2 Financial Call]

The Post also cited Hewlett-Packard as a company that might be interested in acquiring VMware.

Both EMC and VMware declined to comment on the report. However, a source familiar with the matter told CRN that there is no truth to the rumor that EMC is considering selling off its stake in VMware.

That source, who requested anonymity, said the source of the speculation remains unknown.

The response by that source appears to echo the thoughts of EMC executives who have indirectly addressed the issue of a potential VMware sale previously.

EMC Chairman Joe Tucci in July proactively addressed the question during his opening remarks at the company's second fiscal quarter 2014 financial analyst call, saying that he had agreed to meet with Elliott Management as he does with all of EMC's large investors.

Later, during the question-and-answer period of the conference call, when Tucci was asked by a financial analyst about the positive and negative implications of a separation between EMC and VMware, he responded that EMC as a whole is the best way to support customers as they move to what EMC terms the "third platform" of IT, which combines mobile computing, big data, the cloud and new ways to use social media.

"The whole game here is going to be, how are you going to support 'platform two' so they feel comfortable, and how do you transition them so you make their journey as seamless as possible to 'platform three?' " he said. "Without a doubt, we have some great assets. ... To me, splitting them up, spinning out one of your most strategic assets -- I don't know of any other tech company that has done that and been successful."

NEXT: Goulden Tells Investors A Partnership With VMware Is Not Enough

EMC Information Infrastructure CEO David Goulden told investors Sept. 3 at the Citi Global Technology Conference in response to a question from the audience that customers want a complete infrastructure solution as they move to the third platform.

"We believe that there are real synergies and real benefits, hard dollar benefits, in having VMware [as part of] EMC, and Pivotal and VMware -- and, sorry, and RSA -- in the same company. And we believe, if we separate it we would actually destroy value by doing so. It wouldn't be as efficient a mechanism and it wouldn't be as strong a competitor in the marketplace as we are today," Goulden said according to a Thomson Reuters transcript of his remarks, which was reviewed by CRN.

When someone in the audience said that it would be still possible for EMC and VMware to have a partnership if VMware were sold, Goulden agreed that business partnerships are indeed possible.

"But customers really do understand the difference between business partnership and true, tight alignments. Business partnerships (come) and go. They're subject to external forces including what happens to the individual parts of the company. ... We believe that you would basically hurt value for shareholders if you separated. The two parts would be less strong individually than the companies together," he said according to the transcript.

Solution provider partners of EMC and VMware said any deal by EMC to sell its take in VMware would hurt EMC and the industry.

Their primary reasoning is that EMC has done much to keep VMware free to work with any and all IT vendors, but such collaboration would be curtailed or cut altogether as an independent VMware would not likely be able to resist being swallowed up by another vendor.

While speculation in July of a VMware sale was centered on the possibility of VMware being an independent company after such a sale, which would be good news, the reality is that VMware would find it hard to remain independent, said Jamie Shepard, regional and health systems senior vice president of Lumenate, a Dallas-based solution provider and long-time partner of both EMC and VMware.

"If I were VMware, I'd want to be independent," Shepard told CRN. "I'd want to be free to work with anyone. That's how the software world works."

NEXT: Channel Sees Little Or No Upside From An EMC Sale Of VMware

However, Shepard said, VMware would lose that independence were it swallowed up by another vendor, either in a deal to sell VMware directly to another vendor or a deal to spin VMware off as an independent company that would then likely be purchased.

"If HP buys VMware, that would be terrible," he said. "IBM, even worse. And Oracle would be the worst."

VMware is such a valuable part of EMC that a sale would be a shock, Shepard said. "If I were an EMC executive, I wouldn't want to sell VMware," he said. "It would be like a baseball team trading off its top pitcher or outfielder."

Shepard said he knows that EMC has to consider such a deal given the concerns of its investors. Should EMC decide to sell an asset, however, he said his bet would be on something else like EMC's RSA security business.

An executive at another solution provider close to both EMC and VMware told CRN on condition of anonymity that VMware, as a part of EMC, gives EMC protection from industry moves towards things like software-defined networking and storage that might otherwise swamp EMC as a storage-only vendor.

"With VMware, EMC wins either way, whether the data center infrastructure goes virtual or not," the solution provider said. "There's more money to be made at EMC by keeping VMware than from a sale."

The acquisition of VMware by HP or Oracle would have a "horrible" impact on VMware, the solution provider said. "If VMware were to become independent, how long would it stay that way?" the solution provider said. "There's no vested interest in VMware remaining independent in the long-run."

Another solution provider close to both vendors told CRN on condition of anonymity that a big part of VMware's success comes from access to some of the best and brightest technology developed in conjunction with EMC.

"EMC sees the writing on the wall, and wants to be a more software-focused company," the solution provider said.

VMware is looking at a huge and fast-growing total available market with its Vsan storage virtualization and NSX software-defined networking technologies, and both VMware and EMC are huge potential winners in that market, the solution provider said.

"I don't see EMC giving up that part of the business unless there's some big external factor," the solution provider said. "There's too much downside to handing VMware off to HP, which is already gunning for EMC with its 3PAR storage. And handing it off to Oracle would be worse."

The solution provider remains bullish on VMware's prospects. "It has the vision and the software capacity to disrupt the market," the solution provider said.

PUBLISHED SEPT. 11, 2014