Vendor also considers buying remaining shares of virtualization giant, Wall Street Journal says
The Lowdown: A report this week in The Wall Street Journal said Dell officials are weighing whether to sell the company’s stake in VMware or buy the remaining share it doesn’t already own. Dell also could do nothing, leaving everything as is. Officials from Dell and VMware reportedly declined to comment on the report.
The Details: The process of assessing VMware’s future with Dell began recently, with Dell working with some advisors, the report said, citing unnamed sources. According to the news story, it’s unlikely Dell would spin off the VMware stake before September 2021 because there’s a rule requiring both companies in a spin-off to have operated continuously for five years in order to complete the transaction tax-free.
Dell inherited VMware as part of its massive $67 billion acquisition of storage giant EMC in 2016 and has let VMware run essentially as an independent company. With the EMC deal, Dell took on a lot of debt and recently reported that it held more than $44.3 billion in long-term debt.
The goal behind buying EMC was to give Dell a more complete solution and service portfolio, adding top-tier storage, virtualization, cloud, security, and other capabilities to its core PC and server businesses. There was concern after the EMC deal was made about how Dell would manage VMware, even as CEO Michael Dell promised to let the company continue to run independently.
That said, Dell also has leveraged its close relationship with VMware to drive tight integration between the two companies’ products. That’s been seen most recently in Dell’s cloud offerings. The Dell Technologies Cloud uses VMware’s Cloud Foundation platform, and Dell’s Cloud Data Center-as-a-Service is based on VMware Cloud on Dell EMC, a productization of VMware’s Project Dimension.
A spin-off of VMware reportedly is being viewed as a way of pushing up Dell’s value, with its stock price growing slowly since Dell became a public company again in 2018. Recent quarterly reports show Dell with essentially flat revenue growth in the first quarter and VMware with first-quarter revenue growing 12%.
Background: Since making its mark as a pioneer in the data center virtualization space, VMware has become a significant player in the growing hybrid cloud market, not only working with Dell but also partnering with such public cloud service providers as Amazon Web Services, Microsoft Azure, and Google Cloud.