EMC to Acquire VMware for $635M

Storage systems giant EMC Monday inked an agreement to buy privately-held VMware for $635 million in cash.

The Palo Alto, Calif. outfit’s assets should help EMC’s strategy to help customers lower costs and streamline operations by deploying virtualization technologies, which create one pool of storage and computing resources across their fragmented IT infrastructure.

VMware’s software allows such operating systems as Microsoft Windows, Linux and NetWare to run simultaneously and independently on the same Intel-based server or workstation, all while shuttling live applications across systems with no business disruption.

This consolidates servers and pares server-provisioning time in addition to raising the utilization rates of servers from 15 percent, on average, to 80 percent.

Buying VMware, the acknowledged leader in virtualization software for Intel-based servers, will further help EMC in its quest to become a leading storage software provider of virtual computing, in which IT workers configure and reconfigure computing and storage environments with no downtime, according to changes in their business needs.

While EMC already offers storage virtualization, tapping a computing virtualization business is a bit of a change.

During a conference call, EMC President and CEO Joe Tucci made an effort to assuage concerns about EMC’s server-oriented move, noting that while server and storage virtualization have existed as separate entities, he sees the two technology segments converging.

Tucci and Diane Greene, VMware’s current President and CEO, said VMware’s current partnerships with server vendors HP and IBM would continue, as well as those deals with systems management providers, including IBM’s Tivoli line, BMC’s Patrol segment and Computer Associates’ Unicenter force.

More broadly, the purchase would help EMC further its information lifecycle management (ILM) strategy for managing data from its creation until its disposal that has become wildly popular among storage vendors in recent months. Rivals, including Hitachi Data Systems and Veritas Software , are all producing ILM products or strategies.

The deal marks EMC’s third acquisition bid for a large software company to meet its goal for ILM since it announced the purchases of Legato
and Documentum in July and October, respectively.

Tucci said on the call that EMC had been talking with VMware about an possible deal since the summer but didn’t expect to make a commitment until mid-2004.

However, he said, the exclusivity of VMware’s products, which have found their way in the data centers and desktops of some 5,000 customers, made it too tempting to wait.

Moreover, he said, EMC and VMware have been working on a stealth product to render multiple arrays in a single view, and incorporate technology from VMware into EMC products to seamlessly manage storage and server virtualization from a single domain.

EMC executive vice president and CFO Bill Teuber said VMware, which expects to tally about $100 million in revenues for 2003, should earn roughly $175 million to $200 million in revenues in 2004 under EMC.

Should the deal close, EMC plans to operate VMware as a software subsidiary of EMC. It will remain headquartered in Palo Alto and led by Greene. VMware will remain focused on developing, selling and servicing VMware’s products and solutions.

EMC expects to take a charge of approximately $15 to $20 million in the first quarter of 2004 for the value of VMware’s in-process research and development costs and other integration expenses. The acquisition is subject to closing conditions and regulatory approvals, and is expected to be completed early in early 2004.

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