Reports: EMC-VMware May Scrap Plan For Virtustream Cloud Joint Venture

EMC and VMware's Virtustream cloud services joint venture, which the vendors unveiled with great fanfare last month, now appears to be all but dead, according to two reports Tuesday.

The proposed 50-50 joint venture consists of VMware’s vCloud Air hybrid cloud service, Virtustream’s Infrastructure-as-a-Service, VCE's Cloud Managed Services, and EMC’s Storage Managed and Object Storage services.

According to Reuters, EMC has decided to keep a majority stake in Virtustream, which it acquired in July for $1.2 billion. VMware would have an unspecified minority stake in Virtustream, and EMC could announce the new plan next month, Reuters reported.

[Related: VMware Cutting Back On vCloud Air Development, May Stop Work On New Features -- Sources]

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Meanwhile, Re/code reported that large EMC and VMware shareholders are pushing for the vendors to scrap the Virtustream joint venture because they feel it's creating downward pressure on VMware's stock price and could complicate Dell's $67.1 billion bid to acquire EMC.

VMware shares plummeted 19 percent on Oct. 21, a day after it announced the Virtustream joint venture and shared fourth-quarter and 2016 results that included lower-than-expected revenue numbers. VMware shares are down about 30 percent since reports of the Dell-EMC deal surfaced Oct. 9.

However, investors responded positively to the latest Virtustream joint venture developments, as VMware shares climbed nearly 4 percent in Tuesday trading to close at $60.34. EMC shares rose 25 cents to close at $25.47.

Spokesmen from EMC and VMware declined to comment on the Reuters and Re/code reports.

VMware has told partners recently that the Virtustream joint venture is set to close in January. But some partners aren't sure how combining vCloud Air -- a business many claim is seeing very little interest from customers -- with a promising-but-still-unproven Virtustream will result in a bona fide force in the cloud market.

"My original reaction when VMware announced it was rolling vCloud Air into Virtustream was, 'Why?' It really doesn't make sense," said one partner who works with VMware and EMC, who didn't want to be named.

VMware's recent 10-Q filing with the Securities and Exchange Commission included risk factor language that some partners and industry analysts found unusually detailed, including a part that warns that the joint venture might not happen.

In the filing, VMware also notes that "if we do not form a new cloud services business with EMC, our vCloud Air business may suffer, and it would be difficult to successfully execute a standalone hybrid cloud strategy."

The question now is, what happens to vCloud Air? Sources told CRN in late August that the hybrid cloud service was facing an uncertain future and that VMware had halted development. The subsequent departure of several top vCloud Air executives has only added to the questions around VMware's commitment to the service.