EMC, VMware to Spin Out Virtustream as Hybrid Cloud Business

The new company will be jointly owned by both EMC and VMware, and will include technologies from both parents as well as VCE.


EMC and VMware are creating a new jointly-owned hybrid cloud company that will be based on the Virtustream business that EMC acquired earlier this year and will incorporate other technologies from both of the parent companies. EMC and VMware officials announced the new company—which will carry the Virtustream brand—Oct. 20 during the releases of their respective quarterly earnings. The new business will be added to the list of companies—which include VMware, RSA, VCE and Pivotal—that make up EMC's federation. EMC and VMware each will own a 50 percent share of Virtustream.

The news comes a week after Dell announced its plans to buy EMC for $67 billion, making it by far the largest deal in the tech industry. During the Dell World 2015 show this week in Austin, Texas, CEO Michael Dell made the hybrid cloud a centerpiece of his company's enterprise message, and said several times that the acquisition of EMC—as well as its various companies, including VMware and Virtustream—will enable Dell to become the top player in the hybrid cloud space.

EMC and VMware officials also see an opportunity for Virtustream to establish a strong presence in a part of the infrastructure market that is growing quickly. In a hybrid cloud environment, businesses run on-premises infrastructures and software to create a private cloud while also running some workloads in public clouds from such providers as Microsoft and Amazon Web Services (AWS). In addition, they use software to manage the relationship between the two.

"Virtustream will be a leader in the largest market for IT infrastructure spending, and we expect Virtustream to become one of the top five cloud service providers globally," VMware CEO Pat Gelsinger said during a conference call with analysts and journalists to talk about his company's latest quarterly financial numbers, according to a transcript from Seeking Alpha.

EMC CEO Joe Tucci, in a statement, said that "through Virtustream, we are addressing the changes in buying patterns and IT cloud operation models that we are seeing in the market. Our customers consistently tell us that they are focused on their IT transformations and journeys to the hybrid cloud. The EMC Federation is now positioned as a complete provider of hybrid cloud offerings."

EMC in May spent $1.2 billion to buy Virtustream, a six-year-old company known for its hybrid cloud management software. Officials with EMC and VMware said they expect Virtustream to reach hundreds of millions of dollars in recurring revenue next year and grow to a multi-billion dollar business within a few years. The expected growth in the hybrid cloud market is helping fuel that optimism.

EMC cited a report from market research firm 451 Group that noted almost a third of all IT infrastructure is going toward cloud-related technologies. Dell officials said that in a survey of IT decision makers, 90 percent said hybrid clouds will be important to them, and the company's recently released Global Technology Adoption Index found that 55 percent of organizations worldwide use more than one type of cloud.

The new company will include not only Virtustream's infrastructure-as-a-service (IaaS) offering, but also VMware's vCloud Air cloud technologies, VCE's cloud managed services and EMC's storage managed services and object storage services. The goal is for the new company to integrate these various capabilities to create a single, unified IaaS solution on which customers can run all their workloads, and that will help them adopt a hybrid cloud model.