By Dow Jones Business News, March 13, 2013, 11:50:00 AM EDT
By Drew FitzGerald
NEW YORK--EMC Corp. ( EMC ) and VMware Inc. ( VMW ) plan to carve out new stock for several in-house software development
companies in a jointly owned entity that could eventually go public, EMC Chairman and Chief Executive Joseph Tucci said.
The Pivotal group--which includes VMware's Cloud Foundry application platform service, EMC's Greenplum data analytics
software and other products--will create its own equity aimed at "potentially" attracting strategic acquirers, Mr. Tucci
said, though he cautioned such goals are far away and could change.
VMware, meanwhile, tweaked its top-line estimate this year to reflect its plan to separate Pivotal into a new entity,
predicting $5.12 billion to $5.24 billion of revenue excluding sales from the organization's components. VMware's
downbeat view in January called for $5.23 billion to $5.35 billion from its entire business.
VMware shares climbed 7% to $80.71 Wednesday. EMC shares added 2% to $24.98.
The new initiative comes at an especially sensitive time for VMware, after its cautious January guidance caused some
financial analysts to question whether the software company's brisk expansion over the past few years is set to cool.
The Palo Alto, Calif., company has grown to a more than $4 billion business making software that creates virtual
computers inside a single host server, allowing users to get more power out of each machine, yet its latest projections
called for slower than expected growth in license fees.
Wednesday, VMware Chief Financial Officer Jonathan Chadwick said the company expects its subscription and services to
expand about twice as fast as revenue from licenses, driving a 15%-20% increase over the coming three years.
FBR Capital analyst Daniel Ives called those long-term revenue targets "healthy and much better than feared heading
into today's event."
EMC in December tapped Paul Maritz, its chief strategy officer and VMware's former chief executive, to lead the
Pivotal initiative, though management left the organization's formal place within its parent companies an open question
The new group will include VMware's vFabric, Cloud Foundry and Cetas organizations, all of which will rely on VMware's
sales force while contributing little to VMware's top line aside from commissions.
The Pivotal group also will carry Greenplum, a software company that EMC offers to customers seeking faster ways to
analyze massive and often disorganized troves of data. Other software providers such as San Francisco-based Splunk Inc.
( SPLK ) have cashed in on soaring demand for the service with revenue growth that regularly tops 50%.
"Few public 'pure-play' Big Data companies exist today, but valuations are high for those that are public, like
Splunk," Bernstein Research analysts Toni Sacconaghi and Mark Moerdler noted in a preview of Wednesday's event.
Perhaps more importantly, combining the smaller businesses offers the Pivotal group's new management a chance to
devote more attention to the software providers, which aren't part of either company's core business, the analysts said.
Write to Drew FitzGerald at email@example.com
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