A spinoff would give VMware the chance to work with more hardware manufacturers.
Speaking to CNBC this week, VMware CEO Pat Gelsinger said that a spinoff from parent company Dell could open up a wide range of new opportunities.
Such a spinoff would not, after all, come as a surprise. Dell’s acquisition of EMC in 2016 for a $67 billion gave Dell an 81% ownership stake in VMware.
Dell filed its 13D document on July 15 in regards to the potential spin-off of its ownership interest in VMware to Dell Technologies stockholders or maintaining the status quo. Dell said that it was exploring a VMware spinoff to Dell shareholders, in part to enhance “strategic flexibility.” Any deal wouldn’t happen before September 2021, Dell said.
Also read: Enthusiasm but also doubts about Dell’s strategy change
Talk of a spinoff has been on again, off again
Talk of a possible spinoff started soon Dell bought EMC, and the subject has been the topic of on again, off again discussion over the years.
In August Gelsinger confirmed on VMware’s Q2 earnings call that a possible spinoff was in the offing. No wonder, then. that Gelsinger may already have some plans in the pipeline.
Ahead of this week’s virtual VMworld conference, Gelsinger told CNBC that VMware’s server virtualization software could start to “show up with HP” if that was what his customer base wanted.
The COVID pandemic takes its toll on VMware shares
“The ecosystem would look favorably on a more independent VMware,” Gelsinger said.
Indeed, VMware’s license revenue dropped 7% in the quarter that ended July 31, The company’s cloud and subscription unit grew 44%, but that was not enough to impress investors.
As a consequence, VMware shares have dropped this year, underperforming tech stocks and the broader market.
New partnerships and broader access to talent
In addition to greater partnership opportunities, operating independently could make VMware a more attractive destination for top talent and give the company more freedom to do deals, Gelsinger said.
VMware itself has already been very active in the acquisition space. Since becoming CEO in 2012, Gelsinger has completed more than 40 acquisitions. He also led a partnership with Amazon Web Services in 2016, offering customers a combination of cloud and on-premises services.
Gelsinger said that the looming possibility of a change in ownership has caused investors to look for leadership continuity.
“I’m a very happy CEO these days, and I don’t expect that to change,” said Gelsinger.