Is 2015 The Year Of Big Changes For EMC?

Pressure On For Big Change: Is No News Good News?

EMC in July was unexpectedly hit with investor pressure to explore alternatives that could result in improved shareholder return, including selling its 80 percent stake in VMware, or either merging with or selling itself to a major systems vendor, with or without its VMware stake. Until Monday, EMC has resisted the pressure, but this week EMC and activist investor Elliott Management called a truce.

EMC early this year is expected to offer more clear responses to the investor pressure. At the same time, EMC Chairman and CEO Joe Tucci is scheduled to retire early this year after delaying it for several years, but there is no guarantee he or the company is ready for him to leave.

Taken together, this means 2015 will be a very interesting year in terms of what EMC will do to itself. CRN has been closely following these and related questions. Turn the page to look at EMC's 2015 choices.

The Latest: EMC And Elliott Management Sign Truce

EMC on Monday said it added two new people to its board of directors in a move that was approved by one of the storage vendor's top investors, Elliot Management, which has been pushing EMC to make big changes to unlock shareholder value.

One of the new members, Jose Almeida, chairman, president and CEO of Covidien, was in talks with EMC before the Elliott Management news, while the other, Donald Carty, chairman and CEO of AMR Corp., joined at the suggestion of Elliott.

With the deal, Elliott also agreed to certain limited standstill and voting provisions through September 2015. But other changes at EMC are still possible.

Will EMC Sell VMware?

One likely scenario promoted by activist investors is for EMC to sell its 80-plus-percent stake in virtualization heavyweight VMware, either as a stand-alone company or to another vendor. In EMC's third fiscal quarter, VMware accounted for about a quarter of EMC's overall revenue, but over half of the company's net income. And VMware already has an independent and solid executive team that could easily make it work as an independent company.

Tucci in November told investors EMC could easily spin out VMware, but that it had no plans to do so because EMC and VMware together have a scale that makes the whole a formidable competitor.

Does The IT Industry Really Want EMC To Sell VMware?

While EMC investors could cash in big should EMC sell VMware, the impact on the rest of the IT industry might not be so good.

EMC has provided a textbook example of how to acquire and run a company like VMware in terms of keeping its technology development independent of EMC's plans, thereby benefiting not only EMC but also others, including rivals that take advantage of VMware's technology. While an independent VMware would be expected to continue working closely with varied partners, that might last as long is it would take an Oracle or a Cisco or some other vendor to acquire it, in which case that independence might be lost.

Will EMC Sell Any Other Parts?

EMC, via its EMC Federation, actually has a number of units that could easily be stand-alone companies, including:

- EMC Information Infrastructure, which includes its core storage business

- VMware (see the previous slides)

- Pivotal, a provider of big data technology and web development tools

- RSA, a major provider of IT security technology.

Each part of the EMC Federation, in addition to having separate management and operations, are all led by executives known to be as capable to lead stand-alone companies as any in the industry. Selling them would be easy. But parting with them would not, as EMC has made clear that it sees a business value for keeping them together in the EMC Federation.

Will EMC Sell EMC?

EMC in 2014, under investor pressure, allegedly engaged in merger or acquisition discussions with several of the large systems vendors. Although EMC and the other vendors did not confirm such talks, Hewlett-Packard this fall appears to have seriously considered such a deal, and reportedly broke off talks due to the high valuation EMC expected.

EMC, as a whole, has been considered an acquisition target for years, especially for its partner Cisco, which has no real storage offering of its own but instead partners with other storage vendors.

Given EMC's huge $58 billion market capitalization, acquiring it would be tough. However, given that EMC owns about 80 percent of VMware's $34 billion market cap, selling VMware, should that happen, might make EMC a more attractive target.

Will EMC Just Ignore The Activists?

One serious possibility is that EMC will continue to carry on with its current organization and ignore calls by activist investors to split the company.

EMC's Monday share price of just over $29, while down over the last couple weeks, is still well above the 52-week low of $23.47, and close to the high of $30.92. The company's core storage market share in the third quarter of 2014 showed the highest growth of the top vendors, and other metrics of the company's business are doing well. So the pressure to split or sell seems low.

Furthermore, EMC does not want to change. Tucci in November told investors at the Wells Fargo Securities Tech, Media & Telecom Conference that the company's most important consideration should be what is most relevant to customers and help them win deals. "You don’t want to create two things that have less scale or [would] be less relevant," he said.

Will Joe Tucci Retire?

One big variable for EMC is that Chairman and CEO Joe Tucci is slated to retire this February. Unlike many companies EMC's size, EMC has at least three solid executives who could easily step in and take the reins when Tucci retires.

That is, assuming Tucci does retire. He has been expected to do so a couple of times in the last four years or so, but has stayed on, citing requests by the company's board of directors to remain in charge.

Who Would Take Over For Tucci?

Unlike many companies with strong top executives, EMC is lucky in that Tucci and company have a number of very strong executives in its ranks who are all qualified to take over an organization as complex as EMC.

Likely candidates include:

- David Goulden, CEO of EMC Information Infrastructure and the former COO. A 12-year EMC veteran, he is the face of EMC at investor events when Tucci is not around and the most likely to succeed him.

- Pat Gelsinger, CEO, VMware. Gelsinger in 2009 joined EMC after a long stint at Intel where he was widely believed to be the heir-apparent to then-CEO Paul Otellini.

- Paul Maritz, CEO, Pivotal. Maritz was a potential contender to head Microsoft, but left to form a startup later acquired by EMC.