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History 2004: EMC Completed Acquisition of Privately-Held Software Company VMware

For $625 million

EMC has completed the acquisition of privately-held software company VMware for $625 million, in other words slightly less than the $635 million originally announced.

It was a cash deal this time – although with a war chest of $6.2 billion before the acquisition, EMC won’t be cash-strapped for a long time to come-rather than in a stock transaction like the last two major acquisitions, Legato and Documentum.

With this purchase, EMC has invested for the first time in a company that, to all outward appearance, has no direct connection to its storage activity or even ILM.

Based in Palo Alto, CA, and founded in 1998, VMware makes software that lets Windows, Linux and NetWare OSs run simultaneously and independently on the same Intel platform in order to optimize server utilization. This is known as server virtualization or VM, hence the 2 first letters in the company’s name. It offers several utility computing titles, in particular VM Motion to migrate applications from one server to another with no downtime.

No doubt this is what caught EMC’s immediate attention, to combine it with its own SRDF.

In addition, the company offers ESX server and GSX server to partition Intel servers to enable multiple OS and applications to run simultaneously.

VMware made its ESX Server software compatible with storage gear from several storage companies, with the underlying interest for EMC now to integrate storage and server virtualization-two very distinct arenas which until now have ignored each other-in order to allow an application to switch to a different RAID without downtime, ultimately for improved utilization and consolidation of the entire IT infrastructure in order to keep costs down.

The goal in the end is to combine all resources and applications by virtualizing them with high degree of self-management capabilities. This is known as utility computing or on-demand solutions.

Among its partners, a hefty assortment of storage leaders, which could lead to some tension further down the road: EMC, of course, but also Dell, Veritas, IBM, HP, HDS and Fujitsu-Siemens.

Along with IBM and HP, one other firm is set to venture into virtualization machines, and not the least: Microsoft, especially in its post-Connectix acquisition period. There is also noise that the software giant may have bid on VMware sometime last year, but the offer was turned down for fear that Microsoft would transform VMware’s products into Windows-only software.

The start-up has 370 employees, with revenues for 2003 on the order of $100 million, nearly double those of 2002, while remaining profitable, which explains why it was also considering an IPO.

EMC (confirming its reputation as a revenue acquirer, first and foremost) hopes to generate $175 million to $200 million this year.

VMware boasts 2 million registered users and more than 5,000 corporate customers.

EMC has declared that VMware will operate as a software subsidiary, keeping all of its employees with continued operation in Palo Alto, CA, under the management of CEO and president Diane Greene.

For 2004, EMC has plenty on its plate, just in terms of consolidating and reconciling its own offering with the huge mass of software acquired recently, whether from Legato, Documentum in particular, or now VMware, while still finding a way to remain a discreet, if forceful, owner, allowing its acquired team sufficient independence to maintain commercial relations with EMC’s main storage rivals. This is crucial if the company is to recoup as quickly as possible the huge chunk of change it has spent on the 3 California-based software acquisitions, roughly $3.6 billion all told.

At last report, things weren’t going too poorly, since recently IBM announced a deal with Legato, and NetApp with Documentum.

Another ironic aspect of the VMware acquisition, incidentally, is that EMC’s most threatening competitor, Veritas, in 2000 placed a strategic investment of $5 million in the software company, at the time Mark Leslie was chairman and CEO (only to be replaced by Gary Bloom at the end of the same year). Leslie still holds a seat on the start-up’s board of directors, as does Steve Luczo, chairman and CEO of Seagate.

This article is an abstract of news published on issue 192 on January 2004 from the former paper version of Computer Data Storage Newsletter.

Note: In May 2022, Broadcom announced an agreement to acquire VMware in a cash-and-stock transaction valued at $61 billion.

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