Activist investor Elliott Management is pressuring storage technology company EMC to spin off its VMware subsidiary to increase shareholder value, according to Bloomberg and The Wall Street Journal. Bloomberg cited an anonymous source "familiar with the matter" who said EMC should try to sell the unit to a strategic buyer in the storage industry.
Elliott, a New York-based hedge fund, has acquired a $1 billion stake in EMC, representing about 2 percent of the company's outstanding shares and making Elliott EMC's fifth-largest investor, according to Reuters. VMware is itself a publicly listed company, although EMC owns a majority stake in it.
Breaking Up Is Hard to Do
Hopkinton, Massachusetts-based EMC acquired the Silicon Valley-based VMware in 2004 for $600 million, before listing 20 percent of the virtualization outfit on the New York Stock Exchange in 2007. The move was part of EMC CEO and Chairman Joe Tucci's strategy to run EMC as a "federated" company, combining the strengths of companies with complementary technologies, according to the Register.
But EMC is not without other options. According to the Register, it could sell another 15 percent to 20 percent of VMware on the open market, which may give it enough cash on hand to placate Elliott while maintaining its strategy of being a federation of related technology companies.
Recently, VMware has been expanding in two new business lines: the hybrid cloud and end-user computing. Elliott's efforts to spin it off from EMC may indicate that they believe VMware's business model is being undervalued by its role as an EMC subsidiary.
VMware has said that it wants to be one of the top three cloud storage providers. The company has been dominant in the hypervisor market and recently launched its vCloud Hybrid Service (vCHS) as part of its push into the hybrid cloud.
No Slam Dunk
But VMware has been criticized for its approach to the hybrid market. The company has not had the same success that rival Amazon Web Services has had in wooing the hearts of key IT-purchasing decision makers at client companies, according to a report by industry research firm Gartner.
Gartner said VMware's primary hybrid cloud service product "has limited appeal to the business managers and application development leaders who are typically the key decision makers for cloud IaaS [Infrastructure-as-a-Service] sourcing. VMware administrators in IT operations are the most likely champions of vCHS within a business, but they often prefer to build an internal private cloud, and they are also often the people that the business is trying to bypass by going to cloud IaaS. VMware needs to win over these administrators with regard to vCHS, but it also needs to develop a compelling value proposition for developers."
VMware has tried to penetrate the hybrid cloud by appealing to customers that are already using VMware software to virtualize their servers.
Posted: 2014-07-21 @ 12:18pm PT
This is a tad misleading. Amazon has the lead on EVERYONE, not just VMware. And vCHS just recently came out. What IS true is that VMware has some marketing to do. Amazon is a force to be reckoned with, certainly, but let's not mistake longevity in the public cloud market for client preference.