EMCs Latest Acquisition: VMware

Continuing its year-long technology buying spree, network-storage maker EMC on Monday said it had acquired virtual machine technology vendor VMware for $635 million.

EMC Corp., the information storage and management firm, on Monday announced the purchase of Palo Alto, Calif.-based VMware Inc., which specializes in bringing mainframe-class virtual machine technology to industry-standard computers, in a deal valued at $635 million.

EMC president and CEO Joe Tucci said the VMware acquisition would play a key role in EMCs strategy to help customers lower their costs and simplify their operations by deploying virtualization technologies across their heterogeneous IT infrastructure to create a single pool of available storage and computing resources.

VMwares technology enables multiple operating systems—including Microsoft Corp.s Windows, Linux and Novell Inc.s NetWare—to run simultaneously and independently on the same Intel-based server or workstation and move live applications dynamically across systems with no business disruption.

The acquisition comes one year into a stealth project at EMC to develop server and storage virtualization products in partnership with VMware. Tucci said hed spoken to the EMC board or directors about acquiring VMware sometime in mid-2004, but "its impossible to pick perfect timing. The moment of truth moved to now," Tucci said during a conference call Monday afternoon.

Tucci said he wouldnt pre-announce products, but said the pairs work over the past year had resulted in a number of joint server- and storage-virtualization concepts that should result in actual products "to announce in the coming months."

Diane Greene, the VMwares president and CEO said the two companies had "breakthrough synergy," adding that EMC users are often also VMware customers. "Customers wanting storage virtualization also want server virtualization," she said during the call. "We believe it will be very powerful to combine these two." Greene said EMCs global sales force will help VMware meet their goal of accelerating enterprise presence.

Upon completion of the acquisition, EMC expects to take a charge of approximately $15 to $20 million in the first quarter of 2004 for the value of VMwares in-process research and development costs and other integration expenses.

The transaction is expected to be dilutive in the first quarter of 2004 by $0.01 per diluted share and is not expected to impact EPS for the full 2004 fiscal year. EMC expects the addition of VMware to be accretive to EPS by $0.01 in fiscal year 2005, the company said on Monday.

/zimages/5/28571.gifEMC in October announced that it would purchase content-management vendor Documentum. Click here for more information on that deal.

Upon completion of the acquisition, EMC plans to operate VMware, which has 370 employees, as a software subsidiary, which will remain headquartered in Palo Alto and under Greens leadership. Tucci stressed that that EMC was "100 percent committed" to allowing VMware to remain independent to partner with other software vendors.

As for EMCs strong ties to Dell, Tucci said any exclusive deal would be counterproductive, but that "theres a lot of opportunity for a good partnership with Dell… and well be working hard to get Dell to integrate these [server] products."

The deal follows much speculation about interested buyers for VMware, which are believed to have included Veritas Software Corp. and Mercury Interactive.

Many in the industry had expected Microsoft to buy VMware, before the company settled on Connectix Inc.s technology early this year. But Jim Hebert, the general manager of Microsofts Windows Server Product Management Group, told eWEEK in February that while it had looked at all the companies involved in the VM technology space, including VMware, Microsoft was impressed by the fact that Connectix was a Windows-based development organization and used all the Windows APIs," he said at that time.

VMwares technology focuses on the virtualization of the x86 architecture and full hardware-resource management with products like VMware VirtualCenter for management and provisioning and VMware ESX Server and Workstation for virtual machine solutions.

Earlier this year VMware inked a deal with Merrill Lynch & Co., a leading Wall Street brokerage and financial management company in New York, that allows Merrill to standardize on VMware virtual machine software, which enables multiple copies of an operating system to run on the same hardware platform.

It also expanded its partnership with Hewlett-Packard Co., which currently offers a complete line of virtual machine capabilities from VMware Inc. in its line of Intel-based hardware, software and services. /zimages/5/28571.gif