Cloud Services

VMware, EMC Launch Cloud Partnership Amid Dell Acquisition – Confused Yet?

As if their relationship weren't complicated enough, VMware and EMC have jointly launched a new partnership based on assets from Virtustream -- a company EMC acquired recently -- even as VMware and EMC are in the process of being acquired by Dell.

The joint venture -- also called Virtustream -- will specialize in hybrid clouds, jointly owned 50–50 by VMware Inc. (NYSE: VMW) and EMC Corp. (NYSE: EMC), with financial results to be consolidated into VMware's financial statements beginning in the first quarter of 2016.

Last week, the companies announced plans for Dell Technologies (Nasdaq: DELL) to acquire EMC, which owns about 80% of the independent, publicly traded VMware. Michael Dell, company founder and CEO, said this week in a blog post that VMware is "a crown jewel of the EMC federation" and Dell will keep VMware independent.

EMC acquired Virtustream in May for $1.2 billion, with plans to operate it as a separate EMC Federation business -- in other words, a satellite company of EMC, like VMware -- reporting to CEO Joe Tucci. The CEO then was Rodney Rogers, who continues at the head of the new Virtustream. (See EMC to Buy Virtustream for $1.2B.)

[Editor's Note: Are you following all this? This is more confusing than holidays at the Kardashians. ]

Virtustream will generate "multiple hundreds of millions of dollars in recurring revenue in 2016, focused on enterprise-centric cloud services, with an outlook to grow to a multi-billion [dollar] business over the next several years," VMware and EMC said in a joint statement.

In addition to the Virtustream reorganization, VMware announced it will launch a Cloud Provider Software business unit let by Ajay Patel, VMware senior vice president, focused on delivering cloud software and solutions for cloud providers. The business unit will incorporate VMware's vCloud Air network, as well as VMware's existing cloud management tools and Virtustream software assets, including the xStream cloud management platform.

The hybrid cloud market is crowded, with service providers such as Verizon, Masergy, Equinix and Level 3 all making plays, as well as major IT vendors including IBM, HP, Cisco and Oracle. (See Equinix: IT Leaders Shift Focus to Growth, Equinix Drives Hybrid Trend to Colo Growth, Level 3's SDN Play Focused on Hybrid Clouds, IBM Acquires Blue Box to Accelerate Open Hybrid Clouds and Cisco: Software, Cloud to Be 'Main Focus'.)

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VMware announced the new venture on their third-quarter earnings call Tuesday afternoon. Revenues were $1.67 billion, up 10% year-over-year and 14% in constant currency. GAAP net income was $256 million or $0.60 per diluted share, up 35% per diluted share, compared with $194 million, or $0.45 per diluted share, year-over-year.

VMware's SDN software, NSX, was a strong point in the earnings, with the company introducing version 6.2 during the quarter and seeing license bookings more than double, to more than 900, with a significant number of repeat customers, Carl M. Eschenbach, president and chief operating officer, said on the earnings call.

VMware stock traded at $66.45, down 3.47%, after hours.

— Mitch Wagner, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profileFollow me on Facebook, West Coast Bureau Chief, Light Reading. Got a tip about SDN or NFV? Send it to [email protected]

DHagar 10/21/2015 | 8:42:40 PM
Re: Independence Joe, good analogy!  If you call Hong Kong independent?

I think this is sounding like a potential can of worms that will sooner or later need to be simplified and made into a better business model.  Or maybe they can rub the "magic lamp" 3 times?
Joe Stanganelli 10/21/2015 | 7:24:15 PM
Independence Well, China kept Hong Kong independent, right?  ;)
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