EMC to Sell 10% of VMware in IPO

The world's storage market leader says it intends to retain 90 percent ownership of the virtualization leader and wants to invest in VMware to help "realize its full potential in the marketplace."

Data storage giant EMC revealed Feb. 7 that it intends to sell approximately 10 percent of its rapidly growing VMware subsidiary through an initial public offering of newly issued VMware stock.

EMC will retain ownership of the remaining 90 percent of VMware. President and CEO Joe Tucci said in a conference call that the Hopkinton, Mass., corporation has no intention of spinning out or otherwise divesting this ownership interest. The IPO will be held this summer, he said.

"VMware is a precious asset to EMC," Tucci said. "We will retain control of VMware, mainly for three reasons: We want to continue to unlock value for EMCs shareholders; we want to strengthen the retention of our employees at VMware and be transparent about our relationship; and we want to reconfirm our commitment to VMwares platform-neutral approach to network infrastructure."

VMware is the global marketshare leader in software for industry-standard virtualized desktops and servers and is currently a wholly owned subsidiary of EMC.

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VMware had record sales in 2006, increasing revenues 83 percent during the year to $709 million. It finished the fourth quarter of 2006 with year-over-year revenue growth of 101 percent, delivering accelerated year-over-year growth for the fifth consecutive quarter, Diane Greene, VMwares president and EMCs executive vice president, said during the call.

"We expect that the IPO will help us execute on our vision of an industry standard virtual infrastructure," Greene said. "It should enable us to accelerate our ability to find and attract great people, continue to invest in great product development and grow an even stronger partner ecosystem."

VMwares products have saved organizations of virtually all sizes and industries millions of dollars in hardware and operational expenses, power and cooling costs, and reduced downtime expenses, Greene said.

David Goulden, executive vice president and chief financial officer for EMC, said the proceeds from the transaction are expected to provide VMware with the financial resources it needs to "achieve its full growth potential."

The IPO is also expected to provide EMC with the potential to return a portion of the original investment in VMware to EMC shareholders, "while enabling it to retain majority ownership in this strategic EMC business," Goulden said.

The IPO is not expected to have a material impact on EMCs 2007 business outlook, Tucci said. VMware will be a publicly traded entity upon completion of the transaction. Tucci and Greene are expected to be named to VMwares board of directors, a company spokesperson said.

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