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    EMC CEO Tucci Pushes Back at VMware Spinoff Idea

    By
    Jeff Burt
    -
    July 23, 2014
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      EMC CEO Tucci

      EMC Chairman and CEO Joe Tucci does not sound like someone planning on breaking up his company.

      In a conference call July 23 with analysts and journalists to discuss the company’s second-quarter financial results, Tucci said he had read the news reports about activist investor Elliott Management’s intention to urge the storage giant to sell off its 80 percent share of VMware as a way of boosting its bottom line.

      However, Tucci said the only contact EMC officials have had from Elliott Management was regarding the firm’s intention to become one of the vendor’s largest investors and its request to meet with Tucci. According to a July 21 report in The Wall Street Journal, Elliott has acquired a stake in EMC worth more than $1 billion—or about 2 percent of the company—making it EMC’s fifth-largest investor.

      The CEO said he agreed to meet with Elliott “as I periodically do with all of our large investors.”

      “I want to make it clear that other than speculation I have read in the press, I have not met with anybody from Elliott,” Tucci said. “As a matter of fact … in my whole life, I don’t think I’ve ever met with anybody from Elliott, so I really do want to hear what their proposals are and I am sure they would like to hear some of our plans as we present it to our other shareholders.”

      However, when pressed, he said the idea of ditching its stake in server virtualization pioneer VMware didn’t make sense.

      “To me, splitting them up [and] spinning out one of your most strategic assets, I don’t know of another tech company that has done that and been successful,” Tucci said. “So again, I’m interested in hearing ideas. We do have one basic total agreement coming into the meeting. … I think we both agree that EMC is undervalued and the question is, how do we capture that value?”

      During the call, Tucci and EMC Chief Financial Officer David Goulden reiterated the company’s strategy to address what they are calling the “third platform” of computing, driven by such trends as mobile computing, data analytics, social networks and the cloud. Like other established tech vendors, EMC is looking to become more of an enterprise IT solutions provider that can address the changing ways enterprises leverage and consume technology and is focusing on the central role of software.

      EMC officials have created what they are calling a federated corporate model where EMC and its key subsidiaries—VMware, Pivotal and RSA—align their development strategies and integrate their products, but continue to operate as separate entities that give customers a wide range of freedom to choose what products they want to use. Tucci said the federated model creates different offerings as multiple “points of entries.”

      According to The Wall Street Journal, Elliott Management officials are concerned that the EMC’s stock is being held back by having VMware in the fold. EMC acquired VMware in 2004 and has since been running it as an independent subsidiary. Elliott also wants EMC to return more money to its investors.

      During the conference call, Tucci and Goulden noted that the company is raising its share buyback program for this year from $2 billion to $3 billion, and will return more than $7 billion to shareholders over 2013 and 2014 in both buybacks and dividends.

      Overall, EMC in the second quarter generated revenues of $5.9 billion, a 5 percent increase over the same period last year, and $882 million in net income. VMware’s revenues jumped 17 percent, while Pivotal’s revenues jumped 29 percent.

      Elliott has been active in buying shares of tech companies, including BMC Software and EMC rival NetApp. This year, officials with the firm said they were considering buying WAN optimization company Riverbed Technology for $3 billion, saying that the vendor’s products were solid, but that company executives had not taken the steps needed to increase shareholder value.

      Soon after, Elliott officials argued that Juniper Networks’ products were strong but that the company overall was underperforming. Elliott officials met with Juniper executives to discuss what Elliott felt needed to be done, including reviewing its switch and router strategies and reducing expenses to slowing down its acquisition strategy and selling off its security business.

      In February, CEO Shaygan Kheradpir, who took the top job in January, announced a plan to restructure the company’s operations and return $3 billion to investors. In April, he said Juniper was cutting 6 percent of its workforce, or about 560 jobs. This week, Juniper announced it is selling its Junos Pulse security business for $250 million to Siris Capital.

      Jeff Burt
      Jeffrey Burt has been with eWEEK since 2000, covering an array of areas that includes servers, networking, PCs, processors, converged infrastructure, unified communications and the Internet of things.

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