EMC continues buying spree with bid for VMware

EMC did some last minute holiday shopping Monday when it made public its plans to buy VMware Inc. for $635 million. VMware makes software that lets Windows, Linux and NetWare run simultaneously and independently on the same Intel-based machines. Experts believe EMC will use the software to enter the utility computing market.

EMC's software shopping spree continued Monday, when the Hopkinton, Mass., storage giant announced that it has signed a deal to acquire Palo Alto, Calif.-based VMware Inc., a software company that specializes in virtualization software for Intel-based computers. EMC said it will shell out approximately $635 million in cash for VMware. The company expects the acquisition to close in early 2004.

VMware's software is aimed at solving the problems caused by having multiple generations of Windows servers in the data center, and by the growth of Linux. VMware's technology provides a layer of abstraction between the computing, storage and networking hardware and the software that runs on it, which effectively removes hardware management from the equation.

VMware's technology lets Windows, Linux and NetWare run simultaneously and independently on the same Intel-based server or workstation. Dubbed "virtual machines," these multi-operating system computers blend into existing physical infrastructures and management frameworks, allowing users to see resources as if they were dedicated, according to EMC.

Joe Tucci, EMC's president and CEO, said in a conference call Monday that his company has been working behind the scenes to get the deal done. However, he said, EMC made its bid for VMware ahead of schedule because of the company's status as a hot commodity.

"Our internal time frame [for the acquisition] would've been mid-2004, but the reputation of VMware has begun to spread very quickly. This caused the moment of truth to move to now," Tucci said.

Tucci said the "union" with VMware will allow EMC to have the best software to virtualize storage, network and server environments.

Despite Tucci's unwillingness to offer details on new software that could result from the deal, he hinted that EMC may already have a product road map in place: "We'll use our resources to help VMware grow their business faster. We can scale them much faster than they could on their own."

"The acquisition of VMware gives EMC the ability to better compete with vendors that are touting utility computing, as this now gives EMC the ability to virtualize -- and thus automate the provisioning of -- computing resources in addition to storage resources," said Nancy Marrone-Hurley, a senior analyst with Enterprise Storage Group Inc., Milford, Mass.

Marrone-Hurley added that VMware's software support for Linux, NetWare and Windows operating environments suggests that EMC will use the technology to target midmarket as well as enterprise users, since Linux and Windows are the high-growth areas in enterprise data centers.

"EMC is very aggressively pursing a strategy of adding value through software, to the point of spending almost $3.5 billion acquiring software solution companies," she said.

Logic dictates that EMC will look to its partnership with Dell Inc. to sell the VMware technology to end users. However, despite Tucci's statement that EMC is "100% dedicated that VMware [will] remain open to partnerships with other vendors," Marrone-Hurley believes VMware's existing OEM relationships may be in jeopardy.

"Keep an eye on the current VMware relationships with HP and IBM. We expect these companies may now see EMC [and] VMware as a threat to their utility computing [and] consolidation strategies," she said.

Hewlett-Packard Co. and IBM currently use VMware's technology as a component of their utility computing strategies.

Randy Kerns, partner and senior analyst for Greenwood, Colo.-based Evaluator Group Inc., said this deal will take some time to play out.

"With EMC's announced plans for storage virtualization combined with virtualization of the server brought by VMware, they will have a basis for building a competitive utility computing model," he said. "This will take some time, but they now have more armament in their arsenal.

"EMC gets even more presence in some [user] accounts with an independent software product. This expands their portfolio and helps with their claim of becoming a software company."

EMC said the acquisition of VMware will play a key role in EMC's strategy to help users lower costs and simplify operations by creating a single pool of available storage and computing resources.

Upon completion of the acquisition, EMC plans to operate VMware as a software subsidiary based in Palo Alto, Calif., and led by Diane Greene, VMware's current president and CEO.

With the acquisition of VMware, EMC has spent more than $3 billion on software acquisitions in 2003. EMC completed its acquisition of Legato Systems Inc. last October. EMC's acquisition of content management software maker Documentum Inc. is expected to close this week.

Let us know what you think about the story, e-mail: Kevin Komiega, News Editor

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