To many investors it makes no sense. EMC (EMC) owns 80% of VMware (VMW). VMware's most important recent spin-out is the Pivotal Initiative, which is 62% owned by EMC. [GE (GE) paid $105 million to get a 10% stake.]
Yet, whether you look at it from a near-term perspective or a long-term one, VMware has proven the better investment. The reason for that comes down to one word: hardware.
EMC's basic product line consists of Network Attached Storage units. These mostly consist of hard disk drives (increasingly with chip memory as a fast-access adjunct) arranged in clusters to create the "big data" environment clouds thrive on.
EMC has a comfortable lead in this area, with almost half the market according to Gartner Group, and the market is growing, at 21.6% a year according to a recent report from TechNavio.
But that's much slower than the cloud market itself is growing, according to 451 Research, which sees most niches in that space growing at about 40%/year.
You also have to consider the nature of hardware and software. Hardware costs decline along with Moore's Law, and its variants. Software costs don't drop in the same way. Software is still being written primarily by hand, and while the tools like languages to write it have gotten better, with new languages and assembly techniques that constantly abstract complexity, it's still hard work, done by hand, by people who are paid well for their time.
While hardware declines as a factor in IT spending, in other words, software continues to gain. It's been like this for decades, and it's not changing.
So despite the fact that EMC's base business is doing well, it's not doing nearly as well as the company's software adjuncts, and it's unlikely that it ever will.
VMware, by contrast, is a pure software
