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CRN: Do you think VCE compensation needs to change? Or at this point, is it working?
Tucci: I think we have a good comp around VCE. And the cooperation and understanding gets better every day. Are we exactly where we want to be? No. Are we light years ahead of where we were this time last year? Yeah.
CRN: So you have pumped $383.2 million into VCE in fiscal 2011. At the same time, the net loss was $209.2 million, according to the [SEC Form] 10-K. How much is EMC going to invest in it going forward, and when will it be profitable?
Tucci: You gotta remember that you can’t really look at it that way. It’s another one of the things we gotta look at. The profit and the revenue flow back through the parents. So therefore, the more successful VCE is, in theory, the more money they’ll lose.
But what we do, underneath it all, is keep a management P&L. If we were losing that much money, we wouldn’t be doing it. Obviously there was a loss. But at the levels we’re headed to, we keep talking about sometime this year, and we haven’t given an exact quarter, this will be a billion-dollar-run-rate business. And I can assure you that, at that level, this will be a profitable business.
But, when you look at the 10-K, because VCE expense shows up below the line, in other expense, you will see it will look like a loss. But there’s a management P&L on top. We know how much of that profit went through the parents. But you can’t double-report. So it’s in the [EMC] Symmetrix line, it’s in the (Cisco) Nexus line, it’s in the UCS line for Cisco, it’s in the [EMC] VNX line, etc. It’s in VMware’s profit.
So that’s where the profit ends up. But some of the expense is down here, in VCE, in the business. And obviously if you do it that way, and we do it that way, you’re always gonna see a loss down here. But we’re smart enough to understand it. We track what profits we make through that. And we are satisfied with the progress.
You’re right. The world kind of understands it, and they don’t understand it.
CRN: Does VCE really need a separate organization? Do you feel that sometime in the future it could be pulled back into the companies?
Tucci: The problem is, how do you pull it back in? I think what makes it different and unique over VSPEX or FlexPod or anything like that is that this is a real skin-in-the-game investment for Cisco, EMC and VMware. And as a dedicated organization, with people that do very good things, if you pull it back in, then it becomes more like the other product. It loses its distinction. That’s not what we’re contemplating at all.