EMC Will Keep VMware, For Now At Least

EMC has decided to not spin off its stake in VMware for the future, according to a Friday report in Reuters.

EMC has rejected calls from investors, including Elliot Management, which has a 2.2 percent share in EMC, to sell its stake in VMware, Reuters reported, citing three unnamed sources. However, that decision could change in a few months, Reuters reported.

Storage heavyweight EMC has been considering options for spinning off parts of the company, such as its 80-plus percent of virtualization technology developer VMware or its ownership in security developer RSA, in large part, because of pressure from Elliot Management.

However, that situation was relieved in January, when Elliot Management approved EMC's move to add two new people to its board of directors, and agreed to certain limited standstill and voting provisions through September 2015, including voting in favor of EMC's proposed slate of directors at EMC’s 2015 annual shareholders meeting.

Investors, including Elliot Management, have expressed concern that the EMC Federation, which includes EMC, VMware, big data and business analytics software developer Pivotal, and security developer RSA, hampers the performance of EMC's stock.

EMC CEO Joe Tucci has led the fight to resist a breakup, and has said that while EMC could easily spin off VMware as a separate company because of the way it is structured, EMC, as a whole, offers multiple advantages for customers looking at different alternatives for building their IT infrastructures.

An EMC spokesperson told CRN via email that EMC does not respond to rumors. VMware did not respond to a CRN request for further information.

Any decision by EMC to keep its stake in VMware will be a relief to clients, said Jamie Shepard, regional and health systems senior vice president at Lumenate, a Dallas-based solution provider and channel partner to both companies.

For a while, it appeared there were cracks in the EMC Federation and the potential for VMware being spun out, Shepard told CRN.

"VMware had been getting pressure, not just from investors but also from customers," he said. "Many customers have been saying they want VMware to be more independent. But VMware took a stance with EMC and worked with customer requirements."

VMware's $1.2 billion 2012 acquisition of software-defined networking vendor Nicera also had customers concerned about a potential break in EMC's close partnership with Cisco, Shepard said.

"That was not an EMC plan," he said. "It was a VMware plan. EMC didn't push VMware, and didn't go out to hurt Cisco. That was VMware being independent."

Customers also understand that VMware, if spun off as an independent company, could be acquired by another vendor, such as IBM or Oracle, a move which could challenge the kind of independence VMware has enjoyed as part of EMC, Shepard said.

"VMware is now involved in software-defined technology, and is opening up to working with other cloud providers to move virtual machines with no downtime," he said. "So it's good that EMC holds onto VMware. Customers know this."

PUBLISHED FEB. 27, 2015