VMware Denies Spin-Off Plan, But Experts Say Idea Has Merit

"The speculation about EMC and VMware’s commitment to Cloud Foundry and Greenplum businesses [is] unfounded," VMware said Tuesday in a memo to global spokespeople, which was obtained by CRN "VMware and EMC are very committed to these efforts and are continuing to aggressively invest in their success and long-term contribution to the portfolio."

What could EMC and VMware gain from such a spin-off? With a whittled-down purview of big data and cloud infrastructure -- along with Project Rubicon, EMC and VMware's infrastructure-as-a-service joint venture -- a spun-off company would be more nimble than VMware when it comes to competing with established cloud giants, according to industry watchers.

"The theory is that a standalone cloud, plus big-data-focused business, would be better equipped to battle Amazon, Microsoft and Google," Jason Maynard, senior analyst with Wells Fargo Securities, said Monday in a note to clients. "This new business wouldn't be under the same operating margin constraints if it was private and separate from the VMware P&L."

[Related: VMware Calls Cloud Foundry, Greenplum Spin-Off Rumor 'Unfounded' ]

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One VMware partner, who requested anonymity, suspects VMware and EMC are putting the spin-off plan on hold until the dust settles from this week's unexpected management changes. Effective Sept. 1, Pat Gelsinger will be taking over for Paul Maritz as VMware CEO, with Maritz moving to EMC to take the newly created role of chief strategist.

In any event, the source told CRN he isn't sure what to make of the Cloud Foundry and Greenplum spin-off plans, which were first reported by GigaOm on Monday.

"I don’t know if it’s a good or bad thing. I thought spinning them off would be good in order to create some autonomy, but depending on how they structure moving forward they could be better off keeping it internal," said the source. "I would bet [the spin-off] resurfaces in three to six months."

There is also speculation that EMC, which acquired VMware in 2003 and owns around 80 percent of its shares, may acquire the rest of VMware and then spin out its cloud and big data assets into a separate company. VMware currently sports a market capitalization of $39.6 billion, compared to EMC's 53.5 billion.

The thinking here, according to Maynard of Wells Fargo Securities, is that a privately held spin-off would have more sales and development flexibility by not being beholden to Wall Street.

"Just as VMware needed autonomy from EMC to operate in its early days, we believe the same argument is that the VMware cloud business needs to be free from the limitations of a hypervisor," Maynard said in the note to clients.

VMware may provide more details on the spin-off in its second quarter earnings call next Monday, or at its VMworld conference, which is being held in San Francisco from Aug. 27-31, according to the GigaOm report.