VMware goes public

EMC planning IPO for VMware subsidiary.

Three years after it acquired VMware, EMC on Wednesday announced that it will sell about 10% of its stake in the market-leading x86 server virtualization specialist in an initial public offering.

EMC says it will continue to own the majority of VMware and has no intention of spinning out or otherwise divesting its interest in the company.

"We are doing this transaction for three reasons. First, we believe it will unlock more value for EMC shareholders," says Joe Tucci, EMC’s chairman, CEO and president. “Second, an IPO will strengthen retention of current VMware employees and enhance VMware's ability to attract the best and brightest in the industry. Third, this IPO helps reinforce EMC's commitment to VMware's open platform strategy, a model that has allowed the growth of the virtual infrastructure as a platform-neutral industry standard layer."

Analysts say EMC’s move is a smart one for the company’s shareholders.

VMware is able to fund its own growth via an IPO, and EMC is only giving up a relatively small stake while not impacting its own bottom line or putting a drain on research and development, says Greg Schulz, senior analyst for StorageIO. "Face it, the EMC shareholders have not had the returns that they were used to in the late ‘90s and during the dotcom craze, so this is nice bone to throw to them.”

VMware, which has experienced year-over-year revenue increases for the past five straight quarters, grew its revenues a record 83% to $709 million in 2006. It doubled its revenues in the fourth quarter of last year, compared to the same quarter a year earlier.

“The proceeds from [the IPO] are expected to provide VMware with the financial resources it needs to achieve its full growth potential,” said David Goulden, EMC executive vice president and CFO, in a statement. “The IPO is also expected to provide EMC with the potential to return a portion of the original investment in VMware to EMC shareholders, while enabling them to retain majority ownership in this strategic EMC business.”

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