VMware opts out of joint venture with parent EMC

(Image Credit: iStockPhoto/Melpomenem)

In October 2015, Dell announced a $67-billion bid to acquire EMC, an entity which owns approximately 80% of VMware. A little later, EMC and VMware announced plans to create a joint venture named ‘Virtustream’ which aimed to integrate the cloud services of both entities. However, the market was not receptive to such a move, and the shares of VMware declined by close to 20% after the plan was announced.

VMware’s chief executive Pat Gelsinger had touted the benefits of a comprehensive offering for customers, however, analysts raised concerns related to profit margins on account of increased spending on servers and data centres. Nonetheless, EMC’s chief executive, Joe Tucci, said: “Putting these together will actually save money and actually put more profit on the VMware bottom line.”

Despite these reassurances, VMware has decided to opt-out of this plan for a joint venture in a move that has been lauded by the market. Opponents argued the development was aimed at creating a “dumping ground” for money-losing assets. VMware’s stock price declined when Dell announced its acquisition of EMC, and the stock declined further with the joint venture announcement.

EMC is the largest manufacturer of data storage hardware and the company has entered software and other fields through a series of acquisitions. Executives of the company have defended its corporate strategy by citing market changes and other challenges – such as the rise of cloud services – which some companies use to handle computing workloads and enable them to avoid the cost of buying their own hardware and software.

Virtustream was originally an independent company that operated its own data centres to offer cloud services as well as selling related software. EMC had announced a $1.2 billion deal in May 2015 to acquire the company, which has now become a part of the EMC conglomerate.

Do you think VMware made the right decision? Share your thoughts in the comments.