Dell to Spin Off VMware – Steady as She Goes for Now

S. Schuchart

Summary Bullets:

  • The spinoff of Dell from VMware is long-term good for VMware customers.
  • Enterprise IT buyers and enterprise IT rivals to Dell need make no changes for the immediate future.

On April 15, 2021, Dell announced plans to spin off its VMware business, which will likely net Dell around $9 billion (USD) that it can used to pay down debt or go on an acquisition spree. Dell currently owns 81% of VMware, which it gained during its acquisition of EMC in 2015.  Beyond the obvious need to reduce its debt, it is widely believed that VMware (which still had its own stock) and Dell will both have higher values when they are evaluated as separate entities.  Michael Dell will remain chairman of the board for both companies.

Meaning for Enterprise IT Buyers

One of the defining characteristics of VMware since the beginning has been its agnostic nature, regardless of the hardware. You could even go so far as to say that VMware doesn’t consider hardware important – other than what hardware needs to do in order to run VMware software.  This position was always a comfort for enterprise IT buyers, who could count on being able to use their favored IT brand of storage, networking, and servers.  When it was acquired by Dell, VMware was left as a semi-independent company, with its own stock, board of directors, and management structure separate from Dell, despite Dell’s majority ownership.  In contrast, VMware’s former parent, EMC, was fully engulfed by Dell.  The arrangement that left VMware still more or less independent was thought to be a move to assuage fears of both VMware customers and other VMware hardware partners such as HPE and Lenovo.  These other vendors were concerned that their long-standing relationships with VMware would be curtailed or eliminated in favor of Dell hardware.  VMware customers were concerned they would be pushed via bundling deals or licensing changes towards Dell hardware.

Those enterprise IT fears, while not completely dispelled, should be reduced with the spinout of VMware. As part of the deal, Dell and VMware have signed a five-year commercial contract where they will still work closely together on technology development, sales, and marketing.  That’s not great news in terms of keeping VMware from becoming too Dell-centric, but the reality is that VMware, as an independent company, should be free to pursue other deals and relationships with rival hardware vendors.  It may also help to avoid potential friction between Dell and partners which offer alternative data center platforms to that of VMware, notably Microsoft, Red Hat, and Nutanix.  Of course, a lot of this hinges on leadership at VMware, which is searching for a new CEO.  With Michael Dell no doubt involved in the search, it’s not outside the realm of imagination to assume that the new CEO will be Dell-friendly.

At the end of the day, the advice for enterprise buyers is easy to follow: proceed as normal.  This deal will result in no real changes in the short term.  Dell and VMware are still working closely together.  The long-term prospects for VMware remaining hardware-agnostic have improved.  Of course, there may be changes when VMware selects a new CEO; that individual will no doubt put their stamp on the company.  VMware customers should not be particularly worried about their investment in VMware; there is actually cause for optimism, as VMware will be able to pursue new opportunities as an independent company.

Meaning for Enterprise Vendors

The five-year agreement between VMware and Dell for technology, marketing, and sales isn’t great news for rival vendors, but there are some upsides.  VMware, once it is fully independent and has a new CEO, should be more open to deeper partnerships with other enterprise IT vendors.  Rivals to Dell can pursue deeper cooperation, and while it is unlikely they will get a deal as sweet as the one Dell created for itself, there will be better opportunities to partner with VMware.  But for right now, it’s business as usual.

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