6 Channel-Impacting Facts About Dell's VMware Spinoff
Dell's EMC acquisition left it with considerable debt.
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Michael Thacker, VMware spokesperson, said VMware will have an enhanced ability to extend its ecosystem across all cloud vendors and on-premises infrastructure vendors with a simplified capital structure that will support growth opportunities.
An extended ecosystem, which includes a strategic partnership with Dell, will uniquely position VMware to execute on its multicloud strategy, and to “provide customers our solutions and services on any public cloud and any infrastructure,” Thacker said.
Dell’s stock popped when the spinoff was announced, while VMware’s dipped slightly. In a report released Thursday, Nehal Chokshi from Northland Securities downgraded VMware’s stock to “hold.” Northland says the spinoff reduces VMware’s financial flexibility, risks deteriorating its long-term alignment with Dell, and could create a flood of VMware shares this year, Seeking Alpha reported.
“We felt like this was beneficial for our shareholders because it eliminates a dual-class share structure, and it allows us to operate in [a] broadened ecosystem,” Zane Rowe, VMware’s chief financial officer and interim CEO, told CNBC.
With an even stronger capital structure, Dell said it’s poised to further capitalize on the rebound in infrastructure and PC spending, new cloud operating models driving as-a-service growth, compute moving to the edge, and customers’ longer-term digital transformation initiatives.
“With a strong commercial agreement in place, Dell Technologies will have the ability to continue to work closely with VMware to drive innovation and preserve go-to-market synergies while generating new growth opportunities through an open ecosystem,” it said.
The transaction is expected to close during the fourth quarter of 2021.
“But from your perspective it will be business as usual,” Michael Dell, Dell’s chairman and CEO, said in a letter to customers and partners.
“While we see a very exciting future for Dell Technologies and VMware as separate commercial entities, we also see a very exciting future for Dell Technologies and VMware together, working together as your partner, solving your greatest challenges, delivering your greatest opportunities and, with all of you, continuing to drive our world and our society forward.”
The transaction is expected to close during the fourth quarter of 2021.
“But from your perspective it will be business as usual,” Michael Dell, Dell’s chairman and CEO, said in a letter to customers and partners.
“While we see a very exciting future for Dell Technologies and VMware as separate commercial entities, we also see a very exciting future for Dell Technologies and VMware together, working together as your partner, solving your greatest challenges, delivering your greatest opportunities and, with all of you, continuing to drive our world and our society forward.”
Dell’s spinoff of VMware will mark the end of an era and the start of a new one in VMware’s 20-year-plus history.
Dell announced the decision, a move it’s been exploring since last summer, on Wednesday. Its stake is worth $52 billion.
VMware became part of Dell five years ago when Dell acquired VMWare’s parent company, EMC, for $67 billion. It was the largest deal in tech history. VMWare has been Dell’s best-performing business unit since then; however, the EMC acquisition left Dell with considerable debt. The company plans to use the proceeds from the VMware spinoff to pay down that debt.
The spinoff will create two standalone public companies.
Dell’s Michael Dell
Michael Dell will remain chairman and CEO of Dell, and chairman of the VMware board. Zane Rowe will remain interim CEO of VMware, and the VMware board of directors won’t change.
“Both companies will remain important partners, providing Dell Technologies with a differentiated advantage in how we bring solutions to customers,” Dell said.
VMware was founded in 1998. It went global in 2003, opening its first European office in the United Kingdom. It has since opened offices around the world. In August 2019, VMware rocked the channel by announcing its acquisitions of Carbon Black and Pivotal Software for a combined value of $4.8 billion.
Scroll through our slideshow above for more details about the upcoming spinoff that will have channel impact.
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