Did VMware sell out to EMC too soon?

Did VMware sell out to EMC too soon?

VMware's CEO was pushing to get EMC to spin VMware back out of the EMC fold

Did VMware sell out to EMC too soon? I try not to mix personalities with analysis because when I do, I sometimes get into trouble. But as I try to rationalize Diane Greene's abrupt departure from VMware, and EMC CEO Joe's Tucci's role in her demise, personalities keep getting in the way. While I've met both these powerful players, I can't say that I know them. All I really have to go on is my sense of their public personas. Diane has built a huge following, is perceptive -- even visionary -- and opinionated. Joe has taken control of a franchise that was head-strong to begin with and transformed it. In my view he's even handed, but a man who is very capable of pushing back when pushed. And no doubt about it, with VMware he acquired an equally head-strong organization.

Reading the press accounts, I'm told that Diane was pushing to get EMC to spin VMware back out of the EMC fold come next year. Huh? Hindsight being 20/20, the powers at VMware now see that they sold-out to EMC too soon. They could have made more, much more perhaps, with an IPO of their own? Well, too bad. They should have had more belief in the power of virtualization and the VMware brand. Joe saw the value when they didn't and is now right to say "no."

VMware's desire to move into adjacent markets (VMware Consolidated Backup, Storage Motion, etc.) that at least on the surface compete with EMC's backup and replication products has always struck me as "in your face." And, VMware's dalliances with EMC competitors - storage and otherwise - must really burn the hides of EMC's sales people. The spin-out push was the straw that broke the camel's back, and Joe has done what he had to do as CEO of the parent company with an unruly child. But I also sense, again from the press accounts, that Diane's abrupt departure from the company she helped found is seen as a public execution with Joe holding the smoking gun.

Yes, the announcement heralding the switch from Greene to former Microsoft executive Paul Maritz cites a decision by VMware's board of directors, but as someone astutely pointed out to me, the VMware board is, shall we say, stacked. It includes EMC's CEO, EMC's CFO, two EMC directors, and a member of the Egan family (the "E" in EMC).

At the moment, I see Joe Tucci as a Shakespearian-style tragic hero. In many ways he's done what he had to do, accomplished gargantuan tasks, yet he stands alone. Investors remain unconvinced that he's created a new EMC, even though it's clear to me that he has. EMC's flat share price trend over the last few years as Joe's made brilliantly transformative acquisitions was interrupted only by the VMware "bump" last year. Worse, EMC and VMware stock lost 12 per cent and 24 per cent respectively when Diane's replacement was announced. Neither have recovered. Clearly, Wall Street didn't like this public execution either. It wasn't that long ago that Goldman's Laura Conigliaro called an investment in EMC "dead money." No sign of that prognostication changing any time soon now. As CEO, Joe needs to build EMC shareholder value. I believe that he has. But if I was a financial analyst, I'd be standing alone too.

One other thought. While in New York City recently, I again heard the rumor that Cisco is pursing an acquisition of EMC. It strikes me that Cisco is now in a better position if that's the case. They could buy all of EMC's considerable assets -- virtualization, security, content management, systems management, oh and yes, storage -- at a bargain-basement price. Tragic indeed.

John Webster is the principal IT adviser for research firm Illuminata.

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