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EMC Acquisition of VirtuStream Closes the Door to a VMWare Spin-Off

28 May

spinoff

Two days ago, storage giant EMC announced that it has reached an agreement to acquire VirtuStream for $1.2B. VirtuStream is not the most well-known platform in the cloud market but one that has developed a considerable penetration in the enterprise space. This move follows the recent acquisition of CloudScalingrepresenting another step in EMC’s strategy to develop a robust cloud portfolio.

While the acquisition brings very clear benefits to the EMC cloud stack from the capabilities standpoint, it has raised some interesting questions about the future of EMC’s crown jewel: VMWare. In recent months, EMC has been under pressure from activist investor Elliott Management to spin off VMWare as a separate company. The hedge fund manager has been critical about EMC’s federation structure under which companies like RSA, Pivotal and VMWare are run as independent companies. The debate about a potential VMWare spinoff has continue throughout 2015 in part fueled by the VMWare’s relatively poor market performance. The acquisition of VirtuStream seems to be a clear signal against those plans.

vmware

From a technical perspective, VirtuStream allows companies to transition applications to the cloud in a secure and compliant way. The xStream cloud management platform offers a consistent management   across public, private and hybrid cloud topologies. Those capabilities clearly align with the VMWare’s technologies like vCloud Air that provide a robust option for hybrid cloud enterprise topologies. From that perspective, the acquisition of VirtuStream only indicates EMC commitment to build a robust cloud portfolio in which VMWare is the central piece. In that sense, VirtuStream integration with vCloud Air will accelerate the path for customers migrating applications to a hybrid cloud topology powered by the VMWare stack. Regardless of how the integration between VirtuStream and vCloud Air materializes, its pretty obvious that EMC plans to keep both business running under its “federation”.

Despite the technical alignment and the fact that the price for the acquisition was relatively reasonable and the technology, investors clearly were not thrilled with the EMC decision. To prove the point: EMC shares were down 2.2% at $26.25 in mid-afternoon trading on Tuesday. EMC’s 52-week trading range is $25.07 to $30.92, and the market cap is $51 billion.

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Posted by on May 28, 2015 in Uncategorized

 

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