EMC's Tucci Attempts To Calm Investors As VMware Shares Plummet
With VMware shares plummeting 18 percent on Wednesday morning, EMC CEO Joseph Tucci reassured investors and partners that VMware is "vital" to the success of the new EMC-Dell combined company.
"VMware is vital to the strategic success of EMC's combination with Dell," said Tucci during a conference call with financial analysts to discuss EMC's third-quarter results. "There should be no question about the alignment of interest between Dell and the holders of the tracking stock and the holders of the VMware common stock. Dell will be the largest economic owner of VMware by a wide margin, so no one has greater incentive to drive VMware growth and value then Dell."
Tucci's comments came in light of a $9.4 billion drop in VMware market capitalization since it was thrust into the spotlight as part of Dell's planned acquisition of EMC, announced last week.
[Related: VMware Shares Fall Further, CEO Acknowledges 'Volatile' Time For Investors]
On Oct. 9, the last business day before the Dell-EMC announcement was made, VMware had a market capitalization of $33.2 billion. As of Wednesday morning VMware's market cap sits at $23.8 billion, representing a $9.4 billion dollar drop. VMware's share price dramatically dropped to $56 as of 10 AM ET Wednesday morning, down 18 percent from Tuesday evening, when VMware disclosed its third-quarter financial results.
"Every fiber in my body believes this is good for both the VMware shareholders and EMC shareholders and other stake holders as well," said Tucci. "To be self-critical, I don’t think we've done as good a job as we need to do in explaining the power of this combination and explaining why it's not only good for EMC shareholders and Dell, but also very good for the VMware shareholders."
EMC confirmed that Dell will own 28 percent of VMware when the acquisition is complete.
"Dell would obviously be highly incentivized to ensure that they achieve synergies [with VMware]," said EMC CFO Zane Rowe.
Tucci also reassured partners and investors that VMware will not be spending any money on the Dell-EMC transaction.
"None of the VMware cash flows or debt capacity will be used to finance this transaction," said Tucci. "VMware revenue synergies with Dell could top $1 billion annually in the next few years ... These synergies are not at the expense of current VMware partners, rather they represent true incremental opportunities."
Tucci also reassured investors and that the Dell acquisition had nothing to do with VMware and EMC's recently announced joint venture Virtustream Cloud Services business.
"I can absolutely guarantee everyone on this call or everybody in the world that Dell had nothing to do with that transaction," said Tucci. "There's a lot of conspiracy theories out there. This is being driven more by VMware than anyone else."
It was revealed during VMware's quarterly earnings call Tuesday night that EMC and VMware would create a new enterprise-grade cloud services business based off EMC's acquisition in July of the Bethesda, Md.-based firm Virtustream. The company will be run by Virtustream's CEO Rodney Rogers, said Tucci.
A top executive for one of VMware's largest partners, who did not want to be identified, told CRN his VMware sales were down double digits in the last quarter.
"VMware is feeling the effects of an IT revolution that has given customers over the last three years a wide range of tools and functionality well beyond the VMware vSphere hypervisor," he said. "The competitive products like KVM, Microsoft HyperV and Linux, have matured and gone mainstream."
Steven Burke contributed to this story
PUBLISHED OCT. 21, 2015