EMC's Tucci Addresses Question Of Potential VMware Spinoff On Q2 Financial Call
Joseph F. Kovar
EMC Wednesday used its second fiscal quarter 2014 financial analyst conference call to grab control of the question of whether the storage vendor should spin off VMware, with Chairman and CEO Joe Tucci questioning whether any vendor would consider selling off one of its most strategic assets.
Tucci also addressed the importance to EMC of the EMC Federation, saying that the different components of EMC work together to develop opportunities that none could find on their own.
In a departure from EMC's normal financial conference call, in which Tucci typically speaks last and remarks on the state of the industry, Wednesday's call found him delivering his prepared statement first before David Goulden, CEO of EMC Information Infrastructure and EMC's CFO, talked about the company's financials.
Tucci was responding to news earlier this week that activist investment firm Elliott Management had gathered a $1 billion equity stake in EMC and was calling for EMC to sell VMware.
Elliott Management plans to argue that the EMC Federation, which includes EMC, VMware, big data and business analytics software developer Pivotal, and security developer RSA, hampers the performance of EMC's stock, according to a report from The Wall Street Journal.
Tucci said Elliott Management had contacted EMC to say that it is or it intends to be one of EMC's larger investors, but had not yet discussed any other topics.
"They also requested a meeting with me, and I have agreed to meet with them as I periodically do with all of our large investors," he said. "For the record, and I deeply believe in this principle, we, and I mean 'we' as in management and our board of directors, are always open, and welcome a dialogue with all of our shareholders. And we respectfully listen to their ideas and beliefs as we form our strategic direction and policies."
Later, during the question-and-answer period of the conference call, Tucci was asked by a financial analyst about the positive and negative implications of a separation between EMC and VMware.
Tucci again said he has not met with anyone from Elliott Management. "I really do want to hear what their proposals are, and I'm sure they want to hear some of our plans as we present them to our other shareholders," he said.
NEXT: Tucci Says EMC As A Whole The Best Way To Address IT Transitions
However, Tucci said, as customers move to what EMC terms the "third platform" of IT -- which combines mobile computing, big data, the cloud, and new ways to use social media -- EMC as a whole is the best way to support the transition even as customers continue to depend on existing IT infrastructures to manage current workloads.
"The whole game here is going to be, how are you going to support 'platform two' so they feel comfortable, and how do you transition them so you make their journey as seamless as possible to 'platform three?' " he said. "Without a doubt, we have some great assets. ... To me, splitting them up, spinning out one of your most strategic assets -- I don't know of any other tech company that has done that and been successful."
Tucci said that EMC and Elliott Management do agree on one thing going into their future meeting.
"I think we both agree that EMC is undervalued," he said. "The question is, how do we capture that value and make sure shareholders get it?"
Customers are looking for more relevance from their vendors, not less, and the EMC Federation including VMware provides it, Tucci said, even if there is some confusion caused by overlaps in technology.
"When we plan a strategic alignment, we plan some overlaps," he said. "We get some flurry in the field and other places when we do have that overlap. ... But I think that's healthy. And of course, like in anything, bad news travels in multiples of fast as good news."
Don James, CEO of Bear Data Solutions, a San Francisco-based solution provider and partner to EMC and VMware, said he thinks a spinoff would be a positive thing for the channel.
"It would allow EMC to refocus on its core business of data management and then eliminate any confusion from other vendors and all channel partners over EMC’s true intentions," James told CRN via email.
After Tucci discussed the idea of planning for some overlap in the different parts of the EMC Federation, a financial analyst asked about whether there is too much overlap between EMC's ViPR platform and VMware's Virtual SAN, or VSAN, platform for software-defined storage.
Tucci said that VMware VSAN is an extension of VMware's vSphere, which allows vSphere to manage storage in virtualized environments.
NEXT: EMC's Q2 Revenue, Earnings Report
ViPR and, more specifically, EMC's ScaleIO, is a separate layer outside VMware, and scales across thousands of physical and bare-metal servers with any type of hypervisor, he said.
"We think there's a lot of market potential for both, and we are making sure we have our sales force aligned so they can position the products properly," Tucci said. "But there really isn't much overlap, even between ScaleIO and VSAN. And there's almost no overlap at all in what we're doing with ViPR and VSAN."
As to its financials, EMC, Hopkinton, Mass., Wednesday reported that revenue for its second fiscal quarter of 2014, which ended June 30, hit $5.9 billion, up 5 percent over last year's revenue of $5.6 billion.
Earnings on a GAAP basis was reported at $589 million, or 28 cents per share, down from last year's earnings of $701 million, or 32 cents per share.
On a non-GAAP basis, EMC's income was $882 million, or 43 cents per share.
EMC's core information infrastructure business revenue grew 1 percent over last year due to a 14 percent drop in high-end VMAX sales as customers waited for a refresh in the product line. EMC expects to start shipping the updated VMAX 3 in September, Tucci said.
Revenue for the rest of the information infrastructure business grew 7 percent over last year. That included 6 percent growth in backup and recovery product revenue and 52 percent growth in emerging storage product revenue including EMC's XtremIO all-flash storage solution, which EMC said already has a $300 million annual run rate.
EMC also reported second-quarter revenue for its Pivotal big data business grew 29 percent over last year, while VMware Tuesday reported 17 percent year-over-year revenue growth.
EMC declined to comment about the potential for a sale of VMware beyond what Tucci said during the conference call.
PUBLISHED JULY 24, 2014