VMware CEO: Biz as usual, no spinoff plans

Amid calls for more clarity over its future in Dell-EMC merger, VMware chief Pat Gelsinger says the company will continue to operate independently and work with its existing hardware partners, but dismisses suggestions of a possible spinoff.
Written by Eileen Yu, Senior Contributing Editor

It is business as usual for VMware, which will continue to operate independently when Dell closes its acquisition deal with EMC and remain part of the merged entity.

According to CEO Pat Gelsinger, VMware's operations would remain largely unchanged and unaffected while Dell and EMC themselves worked through restructuring and integration efforts for the two companies. EMC owns an estimated 80 percent stake in VMware.

Speaking at the company's Asean Media Summit this week in Bali, Indonesia, Gelsinger said the merger simply meant he was trading "an E for a D" where his major shareholder had shifted from EMC to Dell. "Nothing [else] has changed. Dell is committed to [VMware's] independence, ecosystem, and [revenue] acceleration," he said, adding that existing relationships with its hardware partners, including HPE, also remained unchanged.

He revealed that he had called HPE CEO Meg Whitman immediately after the merger was publicly announced to assure her both companies' relationship would be unaffected.

Despite the assurance, however, Whitman sent an email to her employees panning the Dell-EMC merger. There inevitably were questions about the impact on VMware's relationships with hardware vendors, the likes of HPE, IBM, and Cisco, which might not be willing to continue their ties with VMware under Dell's parentage since these vendors were fierce competitors in the server market.

It, however, would be to the disadvantage of all market players to pull back support from each other's platforms, said Sandra Ng, IDC's Asia-Pacific group vice president of practice group. "Very few customers would rely on a single vendor because the marketplace today is too complex," she said in an interview with ZDNet, at the sidelines of the summit.

"A lot of queries we get [from enterprise customers] are about vendor sourcing and management...the market is very aware of the need for open innovation and multi-vendor sourcing" Ng said, adding that Dell and any other hardware vendor would want to support this ecosystem.

She said there had been concerns among customers regarding continual support and possible disruption as a result of the merger, but noted that these were not unusual and would typically surface following any merger announcement.

Speaking to ZDNet, Gelsinger acknowledged that HPE and Dell competed head-on and did so across almost all of their product categories. This would continue after the EMC merger was finalised, he said.

The onus then was on VMware employees across all geographies and on a country level to assure their markets that the vendor would retain its authority to pursue its own partnerships, just like it did with NetApp under EMC's ownership, he noted.

"That's how we will continue to work going forward and we will have to prove that over the next couple of quarters even as the merger completes," he said.

According to Ng, there were concerns, though, among customers in this region regarding Dell's strengths, which were perceived to be in infrastructure and hardware. In comparison, EMC and its federation--namely, VMware and Pivotal--were more focused on "solutioning" and addressing business requirements, Ng said, noting that this appealed more to enterprises.

This had resulted in worries that Dell, being the acquirer, would be more focused on moving boxes than on providing services that addressed business requirements, she explained. With greater appreciation for solutions providers, the IDC analyst said Dell and EMC would have to offer some clarity here in its messaging to customers.

Moving forward, Dell would need to work out its go-to-market strategy and messaging as a merged entity, she added.

No plans for a spinoff

And while VMware may continue to function independently, there are no plans to spin off the company, which will be folded into the Dell EMC enterprise division under the merged parent entity, to be named Dell Technologies.

Asked if the company's board had considered spinning off VMware as a separate entity, Gelsinger revealed: "Of course it has, but the conclusion obviously is no. Clearly, the boards could have done that...[but] you would have to pay tax on that gain and that's an enormous tax bill [the shareholders would have to shoulder]."

He added that Dell had pledged to create a US$1 billion revenue acceleration into VMware, and it would lack the economic motivation to do so if the latter was spun out.

"Also, this is a period of great tumult," he said, noting that half of the top 100 technology companies today would no longer exist over the next decade. "Many names will disappear [but] VMware's future a decade from now is determined. Nobody can acquire us. We have one of the largest tech companies with huge economic incentives to see our continual growth. We have a very stable situation...many other companies can't say that."

The vendor, however, still had some ways to go before it was able to move beyond its virtualisation heritage and be perceived as an established cloud provider.

Despite having gained momentum in some of its new product offerings, Gelsinger said there were gaps that needed to be addressed, particularly in its provisions for public and hybrid cloud environments.

"I feel comfortable with our strategy and the gains we're making, but some of the things like last year with Virtustream and vCloud Air, boy, that was definitely not how I planned for those to work out and that slowed us down. As a result, some of these areas, we've got more work to do [and] we're gaining momentum," he said, pointing to VMware's recent partnership announcement with IBM to co-develop and market hybrid cloud software and services.

EMC, which acquired Virtustream in May 2015, had announced plans to jointly form a new cloud services business with VMware, which was to integrate the platform into its cloud portfolio and financials. VMware's stock, however, dipped sharply following the announcement as its shareholders baulked at the likelihood that Virtustream's expected losses from its global expansion plans would pull down VMware's earnings.

Two months later, in December, it dropped out of the joint venture and left EMC to work alone on developing Virtustream's future and its launch at EMC World earlier this month.

Describing the fallout as unfortunate, Gelsinger said considerable effort already had been invested to get the deal done but some "complications" arose. As more shareholders became involved, with Dell and Silver Lake entering the picture alongside VMware and EMC, more approvals had to be secured and the "complexities" associated with the transaction became too great to resolve, he said.

"It was frustrating and we lost a lot of time. Had we known, we would never had started down the path," he said, but noted that a merger as large as the Dell-EMC deal was rare and it would have been difficult to predict its impact across all areas.

For now and the foreseeable future, at least, VMware is pitching itself as a tech partner that enables enterprises to take deploy and manage environments running multiple cloud platforms and devices.

At the summit, Gelsinger touted the company's range of products and services aimed at various environments including private, hybrid, and public cloud models, software-defined data centres, and workplace mobility.

"We want to be the company that enables our customers to run, manage, secure, and connect applications and devices in multi-cloud and multi-device world of the future," he said.

Based in Singapore, Eileen Yu reported for ZDNet from VMware Asean Media Summit and CIO Forum in Bali, Indonesia, on the invitation of VMware.

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