The Cloud

EMC Expands Into Cloud With $1.2B Deal

The $24 billion storage giant said the deal, expected to close in the third quarter, will help increase revenue and profit in 2016.
Matthew HellerMay 26, 2015

Facing slowing sales growth in its data storage equipment business, EMC has agreed to acquire cloud software and services provider Virtustream for about $1.2 billion.

EMC CEO Jim Tucci said Virtustream would complement the storage equipment business as well as cloud services and software already offered by its majority-owned affiliate VMware. EMC’s sales growth has trailed the industry average as companies have moved some computing jobs to cloud services.

“Virtustream is an exceptional company and this is a critical and transformative acquisition for EMC in one of the industry’s fastest-growing and most important sectors,” Tucci said in a news release. “With Virtustream in place, EMC will be uniquely positioned as a single source for our customers’ entire hybrid cloud infrastructure and services needs.”

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Virtustream runs and manages applications in the cloud, including SAP, and its customers include such companies as Coca-Cola, Domino Sugar, Heinz, Hess Corp., Kawasaki, Lexmark, and Scotts Miracle-Gro.

But Wall Street reacted negatively to news of the deal, with EMC stock falling more than 2% to $26.25 in trading Tuesday. As Reuters reports, EMC has been facing pressure from activist investor Elliott Management Corp to spin off VMware.

A spin-off “is the right move in our opinion towards enhancing shareholder value,” Daniel Ives, an analyst at FBR Capital markets, told The Wall Street Journal. “It’s an uphill climb for EMC from here on the growth front.”

EMC maintains an unusual federation of related companies, the best-known member of which is VMware. Its Federation Enterprise Hybrid Cloud Solution is an on-premise private cloud offering that provides on-ramps to public cloud services such as VMware’s vCloud Air.

Virtustream will serve as a new cloud-services segment of the federation. “Our combined capabilities, products, and services will allow us to accelerate our vision of delivering the platform of record for enterprise systems, and address the complete breadth of cloud computing needs,” Virtustream CEO Rodney Rogers said.

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