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Dell Reportedly In Talks To Buy EMC

What VMware's future would be in that scenario is cloudy.

Every week seems to bring a new rumor about VMware and its parent company, EMC. And in many cases, it's obvious that the reason a company is considering buying EMC is so that it can land VMware, EMC's crown jewel. EMC itself is almost an afterthought.

'Advanced Talks'
The latest salvo in this rumor war comes via the New York Times, which is reporting that Dell is in "advanced talks" to buy EMC. The story says that a deal could be reached in as little as a week, although they could still fall apart.

If the deal happens, the big question is what happens to VMware. Currently, it's the main support propping up EMC's value: VMware's valued at about $34 billion, while EMC is worth about $50 billion. EMC owns about 80 percent of VMware. Doing the math, that means that more than half of EMC's worth is due to the fact that it owns VMware.

The two companies appear to be headed in opposite directions, too. VMware continues to increase profitability, while EMC's stock has fallen nearly 13 percent this year, the Times reports. VMware is so important, in fact, that it's been considering buying out EMC in what's called a "downstream merger."

The 'Elliott Effect'
It's no coincidence that all this churn began to be felt after Elliott Management Corp. bought a stake in EMC. Elliott is known for shaking the tree; sometimes it even calls for cutting limbs off of the tree. In this case, it's been reportedly wanting EMC to lop off the "federated" subsidiaries which have made EMC akin to a mall: a bunch of separate companies under one roof.

If Dell should end up buying EMC, the most interesting aspect will be what Dell then does with VMware. According to an article in the Wall Street Journal, "The deal currently being discussed calls for the buyers to spin off EMC's VMware Inc. unit." Why Dell would do this, if true, is unknown. If Dell is only interested in EMC's storage assets, that would make sense.

VMware's Value
But storage, while valuable, wouldn't appear to be as valuable as the assets VMware would bring to the table in the form of its virtualization technology stack. That includes the traditional server virtualization that is at the core of its business, but goes far beyond that into software-defined networking and storage; convergence and hyperconvergence; virtual desktop infrastructure (VDI); enterprise mobility management; and perhaps most importantly, a burgeoning hybrid cloud business. (That was the chief focus of VMware's messaging at last month's VMworld in San Francisco).

VMware also just unveiled a new platform for building cloud-native applications, showing that it's going after developers and the DevOps market, and not just the admin/infrastructure space. Its vision appears more forward-thinking than EMC, which has struggled against new competitors, like those in the all-flash arena.

Who Has the Bullseye on Its Back?
VMware, on the other hand, is thriving in the new frontiers of computing. It seems to react more quickly to the changing landscape than EMC, and get out in front of trends. That would appear to make it a more attractive target than EMC. But Dell may have other plans, and so may Elliott.

Stay tuned; it should be an interesting fall.

About the Author

Keith Ward is the editor in chief of Virtualization & Cloud Review. Follow him on Twitter @VirtReviewKeith.

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