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Tucci, Dell Pin EMC Growth Hopes On Virtustream

EMC Chairman and CEO Joe Tucci said moving storage and managed service assets into Virtustream will make it a nearly $100 million-a-quarter revenue generator.

Joe Tucci and Michael Dell envision very high growth for Virtustream, the EMC-owned cloud services business that recently became the new home for some EMC storage and managed services assets.

In a conference call with investors Wednesday morning to discuss EMC's fourth quarter earnings, EMC chairman and CEO Tucci outlined efforts to move some of the company's storage assets into the Virtustream cloud services business, which it acquired last spring.

Tucci said EMC had moved its cloud-based commercial object storage service business, as well as its managed services business out of EMC Information Infrastructure and into Virtustream earlier this month. The rationale for the move, he said, was to focus Virtustream on complex, mission-critical business applications and to leverage EMC tiered data storage, archiving, backup and recovery.

[Related: VMware Says Newer Products Selling Well, But Weak Guidance Spooks Investors In Q4 Earnings]

Tucci said the move would immediately make Virtustream a nearly $100 million-a-quarter revenue generator with potential for very high growth.

"Both Michael Dell and I are very excited about the prospects for our Virtusteam business and feel that our combined synergies will drive even higher growth rates for this business in 2016 and beyond," Tucci said. Dell, Round Rock, Texas, is set to acquire Hopkinton, Mass.-based EMC in a $67 deal expected to close between May and October.

Stephen Monteros, vice president of business development and strategy at Sigmanet, a Ontario, Calif,-based Dell and EMC partner said he expects to see more of this kind of "juggling" as Dell's acquisition of EMC draws closer.

"It says they've analyzed this, and they've got a sense for what belongs where," Monteros said. "I expect to see a lot of this juggling."

The shakeup comes little more than a month after VMware pulled out of a joint venture with EMC on Virtustream, and it shows that while Virtustream didn't need VMware as much as the companies originally thought, it does present EMC with an opportunity to hitch portions of its legacy portfolio to a business with strong prospects for growth as revenue in EMC's Information Infrastructure business remains flat.

"Virtustream turned out to be less dependent on VMware assets, where they originally thought they would play a much more critical role," said Krista Macomber, an analyst with Hampton, N.H.-based Technology Business Research.

However, "there are plenty of synergies with the core storage business with EMC," Macomber said. "It does make a lot of sense to capitalize on that. Virtustream, prior to the acquisition [by EMC], had a strong reputation in modernizing workloads like SAP and Oracle, and that plays into EMC's storage business naturally."


EMC fourth quarter revenues fell short of Wall Street's expectations, dragged down by slow demand in the traditional storage market. Consolidated revenue for the quarter was about $7 billion, flat with the same period a year prior.

EMC Information Infrastructure finished the quarter with about $5.1 billion in revenue, a 4 percent year-over-year decrease that erased double-digit gains at VMware and Pivotal.

The Virtustream strategy shift also coincides with VMware's plans announced earlier this week to lay off about 800 employees, mostly from its vCloud Air hybrid cloud unit.

VMware will move vCloud Air forward with a more narrow focus on "specialized cloud and software services that are unique and distinctive to VMware," CEO Pat Gelsinger told investors during a conference call earlier this week. Gelsinger said Virtustream would remain part of VMware's network of vCloud Air service providers.

Virtustream also holds promise for Dell, Macomber said. "If Dell is really going to continue moving down the path of being an integrator and broker of cloud environments for customers, Virtustream services could prove very valuable within that kind of context. Modernizing environments and managed services could play valuable role in increasing the perceived value of Dell-EMC as being an infrastructure modernization change agent for customers."

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