Tucci Sounds Off On Activist Investor Pressure, R&D, And The EMC Federation

Tucci In His Own Words

EMC CEO Joe Tucci took questions from journalists and analysts and gave a keynote before thousands of attendees at EMC World 2015 on a wide range of subjects, from the pressure from activist investor Elliott Management to the company's research and development (R&D) investments, and the EMC Federation. Here is an excerpt from the discussion at the Las Vegas event.

Agrees 90 Percent With Elliott Management

Tucci said he agrees with activist investor Elliott Management's assessment of EMC, but disagrees with Elliott's proposal to divest of certain business units. "What Elliott was saying about the company, there's probably 90 percent we agree on: good management, good products and we're undervalued. [Elliott founder Paul Singer] suggested consolidation, or the spin-off of VMware, and I disagreed with that part. But it's incumbent upon us to show that in a reasonable time frame, that we can create long-term shareholder value. The hybrid model is a long-lasting model."

We Want The Same Thing

"Investors and ourselves want the same thing. We want to create more value for our shareholders," Tucci said. However, Tucci said he believes the route to get there is through the EMC Federation (EMC Infrastructure, VCE, VMware, RSA and Pivotal), which creates more opportunity to engage customers. "The biggest move in the industry is the move to the cloud," Tucci said. "To get into that we know that as customers look to a vendor to partner with, we get a tremendous amount of opportunity with customers, and there's no doubt that together we have a much more compelling value proposition than we would separately."

Federation Companies Will Lock Together, But Won't Lock You In

Tucci said EMC's Federation companies, EMC, VMware, VCE, RSA and Pivotal, will fit very closely together so that customers can be offered a full suite of products from a single vendor. He said that ideally, the federation will offer choice and will be flexible. "This is how we set up federation: Build a digital agenda, go to cloud, go mobile and protect yourself. These things snap together like building blocks, like Legos. (Customers) get the speed and agility of a smaller company within a bigger company. To do this is not for the faint of heart, but the philosophy is choice, not to lock you in."

Innovation Is Expensive

Tucci said EMC invests about 12 percent of its revenue in R&D, and about 8 percent on mergers and acquisitions. It all adds up to about $5 billion in R&D investment.

He highlighted six key investments from recent years: NSX, AirWatch, Pivotal, ScaleIO, XtremIO and DSSD. Those six investments cost EMC $6 billion, Tucci said, and it takes vision to see the day when they'll start providing return.

"Those six investment areas … did $1 billion in revenue last year. This year they'll do $2 billion, they're still going to lose money," Tucci said. "But we're putting power behind our vision and our mission, and again, it's all for you."

Say You Want A Revolution

Tucci called the current fundamental shift in the IT business model "unprecedented," and said it could rival the Industrial Revolution in its scope. "We're living in unprecedented times, entering a new digital era," Tucci said. "This is the biggest shift for every business across the world since the industrial revolution. It could even be bigger than the industrial revolution. There's a side to this wave that's opportunistic. That side is far bigger than the disruptive side. You can get hit by the disruptive side, or ride the opportunistic side of the wave. How do we -- and how do we help you -- ride the opportunistic wave?"

Transform No Matter What

Old-school hardware is still a big business. It's big for EMC, and big for its partners and customers, but the future is digital, Tucci said "Go on the offensive and become digital. Build a digital agenda, new, digital-era apps. Rediscover software," Tucci said. "We know there are thousands of well-functioning legacy data centers out there that cost billions to build and deploy, and they're generating trillions in revenue for your companies. But we must transform IT. We must lower costs to pay for the new digital agenda, and we have to dramatically improve efficiency, agility and innovation. Move to a cloud technology, private or public. This is the best way to get ready for Platform 3 and run 'Platform 2.5' transition apps."