EMC: Splitting up is a bad idea – Fortune
EMC’s CEO argued against splitting the storage company from its federation of tech businesses that includes VMware.
It’s going to take more than declining quarterly profits for EMC to consider breaking itself up.
The enterprise storage company detailed in its latest earnings report Wednesday that it earned $487 million in second quarter profits, a 17% decline from the $589 million it brought in during the same period last year.
The company’s total profit is an amalgam of the so-called EMC Federation, a collection of independently run businesses that function together as one major entity.
These companies include EMC EMC 1.64% and its storage business, VMware VMW -1.86% and its data center software business, Pivotal and its data analytics and application development business, and RSA Security. To add to the mix, there’s even a company called VCE that both Cisco and EMC once jointly owned but EMC has since absorbed into its corporate umbrella.
Over the past year, hedge fund management firm Elliott Management has pushed for EMC to break apart the federation under the theory that several slimmer companies—particularly VMware—can operate more efficiently than under one big company. But EMC seems confident with its “five heads are better than one approach.”
“Splitting this federation or spinning off VMware is not a good idea,” said EMC Joe Tucci during an earnings call with analysts Wednesday. “I firmly believe that we are better together. A lot better together.”
During the earnings call, EMC acknowledged that its legacy storage hardware business has declined as more of its customers switch to cloud computing. Basically, companies that pay to host their business infrastructure in another’s data center, like Amazon or Google, are less likely to buy storage gear from EMC.
Tucci believes, however, that companies are interested in what’s known as hybrid-cloud environments, in which they have their infrastructure hosted in their own data centers in addition to cloud data centers. With the hybrid cloud, Tucci claims that EMC’s combination of companies will be more attractive to potential customers.
VMware, for example, has been pushing its own cloud computing environments as well as its traditional virtualization technology that cuts down on data center costs. Essentially, if both VMware and EMC double team to sell a prospective customer a combination of services, Tucci said that both companies can “double the amount of revenue” they take in.
“We know are win rates are higher when we win together,” said Tucci.
EMC did reveal in its earnings report that VMware’s second-quarter revenue rose 10% to $1.59 billion from $1.45 billion. Pivotal logged in $64 million in quarterly sales, an 18% year over year increase from the $54 million it brought in 2014. EMC’s legacy storage business sales was $4.42 billion, a 1% increase from the $4.38 billion it landed during a same period in the previous year.
Clearly, some businesses under the EMC umbrella are growing faster than ever. Now if only one company’s success will bleed over to the next company, then Tucci’s strategy will pay off.
EMC’s stock prices are up by 1.8% to $25.38 as of Wednesday afternoon after the company disclosed its earnings.