Mental Ward

Blog archive

VMware Stock Nosedives as Dell Acquisition Details Emerge

As time rolls on following the announcement that Dell is buying EMC, things seem to be getting murkier for VMware, rather than more clear. The latest fallout from this confusion is that VMware stock is plunging, losing 20 percent of its value.

"Stock in VMware, which trades under its own symbol, dropped nearly 20% Wednesday after EMC said it would reorganize the two companies' cloud-computing offerings into a subsidiary named Virtustream, which is expected to go live early next year," reported Robert McMillan of Dow Jones Business News.

New Cloud Business
No one seems to know exactly what will happen to VMware, as the particulars of the Dell acquisition, a $67 billion purchase that's the biggest in tech history, continue to be released. But one major new direction involves Virtustream, a cloud services company that EMC acquired over the summer to beef up its cloud offerings. According to a VMware press release, VMware and EMC, its parent company (for now, at least), will merge their cloud businesses, to "… incorporate and align cloud capabilities of EMC Information Infrastructure, Virtustream and VMware to provide the complete spectrum of on- and off-premises cloud offerings."

The new business, which will maintain the Virtustream branding, will be owned by both EMC and VMware, and will be run by Virtustream CEO Rodney Rogers. Its financial results will be folded into VMware's, beginning with Q1 2016.

More Public Cloud
VMware is positioning Virtustream as an expansion of vCloud Air, its hybrid cloud offering. Currently vCloud Air is used mostly for on-premises clouds, and hasn't made big inroads in the public cloud space which is dominated by Amazon Web Services (AWS) and Microsoft Azure.

David Goulden, EMC Information Infrastructure CEO, said in the press release that the combining of the cloud offerings "…  is central to our strategy to help customers move all of their applications to the cloud. The new Virtustream business will enable customers to implement a hybrid cloud-based IT environment that incorporates the best of both public and private cloud quickly, and from one source."

If it all sounds confusing, that's because it is. It's still unclear how all this will shake out, with Dell having gone private some years ago, and VMware apparently staying public. The assumption is that EMC will go private as well, but again, those details are sketchy at best. The financial site Motley Fool had this to say, when it analyzed the VMware stock drop:

"The bearish analyst army cited weak forward guidance numbers and an unclear future. Majority owner EMC is in the process of going private under the wing of computer systems giant Dell and a consortium of private equity firms. The buyers took great pains to distance their VMware interests from their outright ownership of EMC, and this report did nothing to clarify the big picture."

Federation Complications
EMC has suffered much over the last few years with its "Federation" model of buying essentially separate IT businesses, and letting them operate as independent fiefdoms. Will Dell now become the overlord, adding servers to the storage, virtualization, cloud, security and other businesses? If so, how will it be any more successful than EMC, which has suffered under the current model?

Perhaps that was why EMC CEO Joe Tucci attempted to assuage those fears during a conference call with investors, as reported by Dow Jones Business News's McMillan. "I could tell you that what I think didn't come across was that putting these together will actually save money and actually put more profit on the VMware bottom line," he quoted Tucci as saying.

A Long-Term Play
The question warranted by that statement, though, is simple: Why does he think that, given EMC's recent history? EMC's problems haven't seemed to harm VMware, because of its independence, but the long-terms effects of the Dell acquisition on VMware won't be felt for some time. What's apparent in the immediate aftermath, though, is that the uncertainty isn't helping it. At all.

Posted by Keith Ward on 10/22/2015 at 10:25 AM


Featured

Virtualization Review

Sign up for our newsletter.

I agree to this site's Privacy Policy.