More

    Does VMware Have a Post-Merger Future?

    Slide Show

    The Five Dos and Don’ts of Virtualization

    It’s hard to believe that a company that has sold its product to virtually every enterprise on the planet would run afoul of the investor class, but as VMware seems to be proving this month, market share alone does not guarantee continued support.

    The news has not been good for VMware since last fall when EMC announced it would sell itself to Dell. With EMC owning the majority stake in VMware, this left the virtualization company in a state of limbo as top executives tried to figure out what to do with it. At one point VMware was to be folded into Dell as part of EMC to face an uncertain future. This plan was quickly shelved in favor of a tracking stock that would allow the company to retain a certain amount of autonomy. But then concern started to mount that a planned joint venture with EMC called Virtustream would saddle VMware with high costs and little profitability, so that was quickly scrapped.

    And now, VMware holders are starting to get restless again as the stock continues to slide despite positive third quarter results. Revenues were up a solid 10 percent to $1.87 billion, and would have been even higher if not for the strong dollar. Even licensed revenue climbed 11 percent to $825 million in an era in which enterprises of all sizes are said to be turning away from traditional software spends in favor of more flexible service-based contracts. But the long-term outlook was less than analysts were hoping for, so the stock remains under pressure as the experts crunch the numbers.

    On top of that, VMware is undergoing a management shake-up and is planning to lay off about 800 workers, roughly 5 percent of its workforce, in a bid to shave about $850 million from its payroll. To some, this is a move to make the merger with Dell a little more palatable for VMware holders, while others see it as a normal restructuring as the company seeks to shore up its competitive position for the massive shift to cloud computing that will unfold in the latter half of the decade.

    But the bigger problem for VMware could be the merger itself. According to John Shinal of USA Today, with EMC having lost about a third of its value since the merger was announced and now trading at below the cash offer of $24.05 per share, many analysts are starting to wonder if the deal makes sense at all.

    And that is hurting VMware particularly badly, with the tracking stock falling from $9.10 last fall to near zero today. These kinds of omens are already putting jitters into other major mergers, such as Symantec’s sale of the Veritas storage business to The Carlyle Group. While there are key differences between the two deals, they both rely on the same debt markets that are already skittish over the recent rout on Wall Street and exchanges across the globe.

    For VMware’s part, the company is taking a proactive approach to the changes affecting the data center, and in particular to the container technologies that are vying with the virtual machine for control of abstract data infrastructure. In a lengthy interview with eWeek’s Chris Preimesberger, CIO Bask Iyer says virtual platforms like vSphere and NSX are still the best way to organize and manage software-defined environments regardless of whether they remain in the data center or extend onto the cloud. This need for end-to-end management and visibility will become increasingly crucial, he says, as infrastructure becomes more software-defined and the need to push security, governance and other functions moves up the stack onto the virtual and application layers.

    At the moment, there is no indication from anyone at Dell, EMC or VMware that the merger will not go forward from here. That could change, however, if VMware investors decide they’ve had enough.

    But as the old saying goes, someone’s loss is somebody else’s gain. If VMware does prove to be the linchpin for the hybrid cloud, then today’s unease could be the opportunity of a lifetime.

    Arthur Cole writes about infrastructure for IT Business Edge. Cole has been covering the high-tech media and computing industries for more than 20 years, having served as editor of TV Technology, Video Technology News, Internet News and Multimedia Weekly. His contributions have appeared in Communications Today and Enterprise Networking Planet and as web content for numerous high-tech clients like TwinStrata and Carpathia. Follow Art on Twitter @acole602.

    Arthur Cole
    Arthur Cole
    With more than 20 years of experience in technology journalism, Arthur has written on the rise of everything from the first digital video editing platforms to virtualization, advanced cloud architectures and the Internet of Things. He is a regular contributor to IT Business Edge and Enterprise Networking Planet and provides blog posts and other web content to numerous company web sites in the high-tech and data communications industries.

    Get the Free Newsletter!

    Subscribe to Daily Tech Insider for top news, trends, and analysis.

    Latest Articles