Some VMware and EMC products overlap, which could create friction
In the prior part of the series, we analyzed the factors that led EMC (EMC) to consider a buyout. We also discussed the expected challenges and synergies if VMware (VMW) concedes to buy EMC. According to Pat Moorhead, head of research firm Moor Insights and Strategy, “VMware has become one of the key companies that provide the glue that holds a data center together.”
Companies prefer to use VMware’s software when they want to shift their computing operations to the cloud. VMware has diversified operations and extended itself into cloud services and storage hardware, which brings it head to head with some of EMC’s offerings.
As the above chart shows, EMC leads the enterprise storage space with 17.4% market share. It is followed by HP (HPQ) and Dell, which held 14.6% and 10.2% of the market share in 1Q15, respectively. Other leading players include NetApp (NTAP) and IBM (IBM).
Of late, EMC has been very active in extending its presence in the cloud space. EMC announced the acquisition of Virtustream in May 2015. Within the span of one year, Virtustream is EMC’s second acquisition in the cloud space. This acquisition complements the Cloudscaling acquisition that EMC made in September 2014. Cloudscaling was one of the first startups to distribute OpenStack open-source cloud software.
Formed in 2010, OpenStack is a free open-source technology that provides an open integration framework that includes computing, storage, and networking. Recently this space has seen a lot of acquisitions. Please read Why the OpenStack Space Is Seeing a Recent Acquisition Spur for more information.
Elliott Management’s standstill agreement expires in September 2015
In this series, we’ve discussed how Elliott Management has pressured EMC to change its federal structure. However, Elliott Management agreed to a “standstill agreement” until September 2015. With each passing day, the pressure is mounting on EMC, as this agreement expires next month.
CEO’s upcoming retirement has hastened EMC’s decision
EMC’s CEO, Joe Tucci, is also under tremendous pressure to get EMC on the right track before he retires. David Goulden, CEO of EMC’s information infrastructure unit, as well as Patrick Gelsinger, VMware’s present CEO, are seen as equal contenders for EMC’s future CEO position.
If you’re bullish on EMC’s stock, you could invest in the Technology Select Sector SPDR Fund (XLK). XLK invests about ~1.27% of its holdings in EMC.