Joe Tucci: 10 Things You Need To Know About EMC, VMware, Virtustream And Dell
Tucci On The Hot Seat
EMC CEO Joe Tucci admitted during the company's recent earnings call that the storage market leader has done a bad job of explaining how its blockbuster $67 billion deal with Dell will impact VMware shareholders.
"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 is going to be very good for the VMware shareholders," said Tucci, during the Hopkinton, Mass.-based company's third-quarter earnings call Wednesday.
The frank assessment was one of 10 major revelations from Tucci in a wide-ranging call with analysts that included new information surrounding VMware, Dell and Cisco Systems.
The call also marked Tucci's first public statements about the new EMC-VMware 50-50-owned joint cloud services business that includes Virtustream, which EMC acquired for $1.2 billion three months ago. Here are 10 things Tucci said the industry needs to know about EMC, VMware, Virtustream and Dell.
VMware Will Benefit Under The New Dell-EMC Umbrella
Tucci said he and Dell CEO Michael Dell have reached out to the CEOs of the key VMware OEM partners to assure them both companies are committed to the software company.
"Dell will be the largest economic owner of VMware by a wide margin. No one has greater incentive to drive VMware's growth and value creation than Dell," said Tucci. "VMware is vital to the strategic success of EMC's combination with Dell."
Despite those comments, VMware's share price has plummeted since the Dell acquisition news. On Oct. 9, the last business day before the news hit, VMware had a market capitalization of $33.2 billion. At the close of the market Thursday, VMware's market capitalization was $23.9 billion, a $9.3 billion drop.
VMware Won't Lose Any Money
Tucci reassured partners and investors that VMware would not be spending or losing any money on the Dell-EMC transaction.
"This transaction will not result in any changes to the rights of the VMware public stockholders. None of the VMware cash flows or debt capacity will be used to finance this transaction. Let me repeat to make sure everyone is clear on this point -- none of the VMware cash flows or debt capacity will be used to finance this transaction," said Tucci. "In fact, they will be used to fuel VMware's innovation and growth."
Dell Plus VMware Equals $1 Billion Opportunity
Tucci said VMware revenue synergies with Dell could top $1 billion annually in the next few years.
"Many of VMware's leading products like vSphere, vRealize, vSAN, NSX and AirWatch are a natural fit for Dell's midmarket customers," said Tucci.
EMC's board and Dell each hired a consulting firm to look at the synergy revenue opportunities between VMware and Dell and both firms came out with "very similar" figures at around $1 billion annually, said Tucci.
"The leaders in the converged infrastructure, hyper-converged infrastructure area -- probably about 70 percent of them are using their converged infrastructure in a VMware environment, maybe even a little higher. Obviously, Dell is playing in that area. They partner with some of those leading players," said Tucci.
VMware Will Play Well With Others
Tucci said the companies that will come out on top in this new era of IT will be the organizations that are the best at adapting to a new era of "cooperation."
"You have to say, 'This is when I'm going to play with my own stack' and 'This is where we're going to play with others', and the companies that can do that best are redefined and VMware is at the heart of that. VMware will play very well with us in the company, but it really needs to play with others."
Dell Had Nothing To Do With Planning Of Cloud Services Unit; VMware Took The Lead
Tucci was straightforward about Dell's involvement with the recent creation of the company's 50-50 cloud services joint venture business with VMware.
"I can absolutely guarantee everybody on this call or everybody in the world that Dell had absolutely nothing to do with this transaction," said Tucci. "This was driven more by VMware than anybody else."
Tucci also said Dell believes Virtustream "was a great and good thing to do."
EMC-VMware Needed To Branch Out With Virtustream
"The board thoroughly investigated a lot of options and thought through a lot of options," said Tucci. "Obviously, we did this one because we thought it was the best."
EMC and VMware executives expect to make Virtustream into a multibillion-dollar organization within several years due to the demand for software services. Another key reason to establish the new company is due to the fast-shifting IT landscape and the biggest players in IT reaching outside their legacy roots, he said.
"Everybody [used to stay] neatly in their lane. There was a storage lane and that's where EMC played. There was a networking lane, that's where Cisco played. There was a server lane -- in the early days you had Sun and HP and then, of course, you had even a database land where Oracle was the big player," said Tucci. "Now you go fast forward -- nobody is staying in their lane … so it's a different world out here now and basically to play in it, you also have to do cooperation."
Dell, EMC Are Committed To Cisco
Although it wasn't completely shocking, Tucci publicly reaffirmed EMC's commitment to Cisco and VCE. When the Dell-EMC acquisition plan was first disclosed, some solution providers speculated it would likely lead to an end to Cisco's participation in VCE -- the converged infrastructure joint venture company between Cisco, EMC and VMware.
"We remain very committed to our strategic partnership with Cisco, VCE and, specifically, Vblocks will be a very important part of the new company," said Tucci. "We will continue to innovate and work together in the converged infrastructure and networking space."
The Future Is Bright For Dell-EMC
"The coming together of EMC and Dell is a game-changer," said Tucci
Tucci said the new company will have an end-to-end product portfolio spanning servers, storage, virtualization and PCs and will be considered a market leader in 22 different segments on Gartner's Magic Quadrants.
"The majority of the integration work takes place in EMC II, where we will combine Dell's server and storage business with our storage and converged infrastructure business," said Tucci. "The combination of EMC's enterprise sales force with Dell's strengths in midmarket, SMB, government, education and health care is complementary and powerful."
Hybrid Cloud Is The Focus For Dell-EMC
"I honestly don't believe that public [cloud] is the right answer or private [cloud] is the right answer," said Tucci. "Our strength is in data centers. So we've got to come from the private side out, but we've got to offer customers a hybrid experience."
Tucci said customers are not going to put everything in data centers or continue to build data centers because they're going to want to use a public cloud offering as well.
"We're coming from a private and we're going to offer public. Obviously, Amazon and Azure are coming exactly the opposite way," said Tucci. "But I truly believe it's not public or private that's going to win, it's the combination that's going to win and that's why when you look at the assets we have through the envisioned new company, I believe they're second to none."
EMC Needs To Be More Transparent
Tucci told industry analysts and media on the call that EMC hasn't done "as good a job as we need to" in explaining how powerful the new Dell-EMC company will be as well as the positive opportunities that lay ahead for EMC, Dell and VMware shareholders.
"If we continue to do our job well and explain it better to you, I think we're going to have a great outcome, and I owe you that and you will get that," said Tucci. "Thank you for your patience and again, we'll be very active with you."