Oct. 22, 2014, 9:28 AM
- Confirming yesterday's Bloomberg report, Cisco (NASDAQ:CSCO) and EMC state the latter will take control of the companies' VCE JV. Cisco's stake will be cut to 10% from 35%, VMware (currently has a sub-10% stake) will maintain an interest, and the business will be included in EMC's income statement after the deal closes in Q4.
- The companies add VCE was on a $2B/year run rate for its Vblock converged server/storage/networking systems exiting Q3, and that the quarter was its sixth consecutive one of 50%+ Y/Y growth. VCE previously forecast 2014 sales of $1.8B. Gartner and IDC have ranked VCE the leader in a converged infrastructure market that also features Oracle, H-P, IBM, and Dell.
- The Vblock like makes use of Cisco's servers and data center switches, EMC's storage systems, and VMware's virtualization and systems management software. Cisco, EMC, and VCE have "existing and renewed multi-year engineering, resell and support agreements" between them.
- Nonetheless, Cisco's decision to cut its VCE stake could pave the way for it to directly compete against Vblock through its UCS server ops, particularly given the recent launch of the UCS Mini (less powerful than Vblock hardware, but also a converged system).
- Separately, EMC has issued nearly in-line guidance to go with its its mixed Q3 results: The company expects 2014 revenue of $24.5B and EPS of $1.90 vs. a consensus of $24.54B and $1.91.
- EMC +0.7% premarket. CSCO +0.3%.
Oct. 22, 2014, 7:05 AM
Oct. 21, 2014, 7:48 PM
- Bloomberg reports EMC plans to announce tomorrow it's buying out much of Cisco's (NASDAQ:CSCO) stake in the companies' VCE JV, which sells high-end integrated server/storage/networking systems (the Vblock line). EMC owns 58% of VCE, and Cisco 35%.
- The report shortly follows a statement from EMC that the company will be announcing a "new business development" tomorrow, to go with its Q3 report.
- Taking a larger stake in VCE would allow EMC to recognize the fast-growing unit's sales in its quarterly results at a time when its standalone storage hardware sales remain pressured by high-end weakness. In May, VCE predicted its sales would rise 80% in 2014 to $1.8B.
- Cisco stated in July it had invested $716M in VCE, and recorded $644M in losses related to it, since the JV's 2010 founding. CRN reported two weeks ago Cisco is thinking of "ending further financial investment in VCE."
- Letting EMC take control of VCE would leave Cisco's server efforts focused on its UCS blade/rack server line (leveraged by VCE), which has been growing quickly itself and is now on a $3B/year run rate. Cisco recently added an integrated system to its UCS lineup (the UCS Mini), albeit one less powerful than VCE's systems.
- EMC is now only up 1.1% AH. Shares were previously higher on hopes the "new business development" would be a VMware (NYSE:VMW) spinoff. VMware, meanwhile, is now only down 1.4% AH after providing light Q4 guidance.
Oct. 21, 2014, 6:13 PM
- VMware (NYSE:VMW) has guided in its Q3 earnings CC slides (.pdf) for Q4 revenue of $1.67B-$1.71B, mostly below a $1.71B consensus. License revenue is expected to grow 11%-14% Y/Y; it was up 13% in Q3, and 16% in Q2.
- Meanwhile, parent EMC, which is set to report tomorrow morning, says it plans to disclose a "new business development." That appears to be fueling hopes a full VMware spinoff will be announced.
- EMC has already been reported to be thinking of fully unloading its VMware stake, as sought by Elliott Management.
- Earlier: VMware beats Q3 estimates
Oct. 21, 2014, 5:30 PM
Oct. 20, 2014, 9:19 AM
- IBM missed Q3 estimates, pulled its $20 2015 EPS forecast, and respectively reported 15% and 7% Y/Y drops in hardware revenue and services backlog.
- Big Blue also stated it "saw a marked slowdown in September in client buying behavior," and declared its numbers "also point to the unprecedented pace of change in our industry" (at least partially a reference to cloud services adoption).
- SAP missed Q3 revenue estimates (while posting in-line EPS), reported a 3% Y/Y drop in traditional software license revenue, and (citing the cloud transition) cut its full-year op. profit outlook.
- Microsoft (NASDAQ:MSFT) -0.8% premarket. H-P (NYSE:HPQ) -2% premarket. Oracle (NYSE:ORCL) -1.8%. EMC -0.8%. There's a good chance other enterprise IT names will trade lower as well.
Oct. 15, 2014, 3:52 AM
- Hewlett-Packard's (NYSE:HPQ) on-off merger talks with EMC (NYSE:EMC) are dead after months of negotiations, Reuters reports, adding that H-P could disclose the news today.
- The companies were still trying to forge a deal last week but couldn't agree on price.
- The development is unlikely to please activist investor Elliott Management, which wants EMC to pursue merger or spinoff opportunities.
Oct. 13, 2014, 5:51 PM
- Cloudscaling provides software for operating private and hybrid clouds based on the increasingly popular OpenStack cloud infrastructure (IaaS) platform. The startup argues its offerings are differentiated by more efficient virtual machine usage and strong interoperability (via APIs) with various public cloud services.
- Bloomberg reports EMC bought Cloudscaling for less than $50M. The purchase comes on the heels of the July acquisition of cloud storage management software vendor TwinStrata, and is the latest example of the storage giant's efforts to grow its arsenal of software that can manage both EMC and non-EMC hardware.
- Cisco, H-P, and Red Hat have also bought OpenStack startups in recent months, as enterprises and service providers give their support to a platform pitched as an open-source alternative to Amazon, Google, and Microsoft's proprietary offerings. GigaOm sees a consolidation wave afoot, and notes Cloudscaling founder Randy Bias "is well-regarded in OpenStack circles."
- Subsidiary VMware might have mixed feelings about the purchase, given its vCloud platform competes against OpenStack. However, VMware (perhaps simply out of necessity) has been gradually warming up to OpenStack itself.
Oct. 9, 2014, 2:07 PM
- After previously following equity markets lower, VMware (VMW +0.2%) has spiked towards breakeven. dealReporter states (citing sources) several suitors have expressed interest. EMC (EMC -1%) has also ticked higher, but remains down on the day.
- Elliott Management continues to push hard for EMC to fully spin off VMware. Though EMC has been reported to be mulling the idea, the company hasn't publicly signaled it's willing to make such a move. H-P's reported merger talks with EMC are said to have been driven by an interest in acquiring VMware.
- VMware's size - its market cap is currently $40B - limits the number of companies that can digest it, especially after an M&A premium is baked in.
Oct. 6, 2014, 9:09 AM
- EMC is trading higher after H-P officially announces it's breaking up in two, as investors bet the odds of a merger with the enterprise IT half of the company (to be known as Hewlett-Packard Enterprise) are higher than the odds of a merger with an integrated H-P that still sells PCs and printers.
- H-P might provide some hints at its Wednesday analyst day regarding whether H-P Enterprise will be open to a major merger/acquisition following the spinoff.
Oct. 5, 2014, 2:14 PM
- The WSJ reports H-P (NYSE:HPQ) plans to spin off its PC and printer ops into a separate, publicly-traded company. An announcement could happen as soon as tomorrow; the spinoff is expected to happen next year.
- Following the spinoff, what's left of H-P would bear a strong resemblance to IBM: A company providing an array of enterprise hardware (servers, storage, networking gear), software (systems management, security, analytics), and IT/cloud services. Ex-CEO Leo Apotheker famously explored unloading the PC ops in 2011, prior to his firing.
- Between them, H-P's PC and printing ops contributed 50% of the company's July quarter revenue, and also 50% of its segment op. profit. The printing unit's op. profit ($1.03B) was nearly 3x the PC unit's ($346M).
- PC revenue was up 12% Y/Y during the quarter (a notable improvement from recent quarters), while printing revenue (hurt by a secular shift towards online/mobile document and photo-sharing) was down 4%. Revenue for all other segments (pressured by software and services weakness) fell 2%.
- The enterprise IT half of the company could make for a more compelling M&A partner for EMC, which was recently reported to have held merger talks with H-P. Re/code has reported H-P was primarily interested in EMC on account of 80%-owned VMware (NYSE:VMW).
- Update: Re/code reports H-P opted for a breakup after failing to sell various business units (PCs, IT services, high-end servers) to Lenovo, Dell, Infosys, Wipro, and IBM.
Oct. 1, 2014, 4:30 PM
- EMC has hired Zane Rowe, who has done stints as United Continental's CFO and Apple's North American sales chief, to be its CFO.
- Rowe's predecessor, David Goulden, was named the head of EMC's core storage hardware/software ops in January. Goulden is now viewed as a potential successor to CEO Joe Tucci, if not the frontrunner.
Sep. 24, 2014, 2:33 PM
- John Chambers has dismissed speculation Cisco (CSCO +1.3%) could make a bid for EMC (EMC -1.1%). "If [EMC CEO Joe Tucci] and I were going to do something here, we would have done it a year or two ago."
- Likely an issue today: A Cisco deal would raise antitrust issues in the network virtualization/SDN software space, where VMware (VMW -0.3%) and Cisco have emerged as the early leaders. Also, Cisco's storage networking unit relies on OEM deals with EMC rivals (in addition to EMC).
- Meanwhile, re/code reports Oracle (ORCL +1.5%), another company whose name was thrown around in EMC deal speculation, is also uninterested.
- Recent reports stated EMC has held merger talks with H-P, but failed to agree (for now, anyway) on a price. Sources (possibly hoping to drum up M&A interest in EMC) added a deal with Cisco or Oracle was also possible. Re/code backs up the part about the H-P talks, while adding H-P was largely interested in owning VMware VMW via EMC.
- Many on the Street still think EMC will make a deal before Tucci's planned Feb. 2015 retirement. Tucci hasn't named a successor yet; Argus' Jim Kelleher consider ex-CFO David Goulden, now the head of EMC's storage hardware/software unit, to be the favorite. VMware CEO Pat Gelsinger and Pivotal CEO Paul Maritz are also in the running.
Sep. 22, 2014, 12:54 PM
- A source talking with Barron's: "They’ve been talking for months and months about this ... Yes, it hit a snag in July, and then resumed in August, and now it took a pause again in September. It could resume ... They were very close last week, and then things went on pause. Things feel very imminent-ish."
- The source (possibly hoping to bring an EMC suitor to the table) adds Cisco and Oracle are also viewed as potential EMC (EMC +1.3%) buyers. He/she also says a full VMware (VMW +1.1%) spinoff remains a possibility, and that EMC CEO Joe Tucci wants to complete a deal by year's end, before his planned Feb. 2015 retirement.
- The WSJ reported overnight EMC and H-P (HPQ -0.5%) had "held off-and-on merger discussions" for nearly a year. CNBC has since reported EMC wanted a large premium, and that H-P was open to unloading its cash-cow printer unit as part of a deal. The Barron's source says an H-P printer unit sale would be "a down the road thing," if it happened.
- The NYT has reported EMC and H-P were discussing a "merger of equals." H-P currently has a market cap of $68.3B, and EMC a market cap of $60.8B. EMC and VMware are trading higher, while H-P is off modestly amid a tech selloff.
Sep. 22, 2014, 12:12 AM
- EMC "held off-and-on merger discussions" with H-P (NYSE:HPQ) for nearly a year before the talks recently ended, the WSJ reports. The storage giant is also said to have held talks with Dell, but it's not clear where the discussions now stand.
- The WSJ notes Cisco and Oracle are also seen as potential EMC merger partners, and reports JPMorgan is advising the company on its options. The WSJ's report follows one from the NY Post stating EMC is exploring selling its 80% VMware (NYSE:VMW) stake, in the wake of pressure from Elliott Management.
- Beyond that, EMC and fellow IT hardware giants have seen their sales pressured by a secular shift towards cheaper hardware, and the adoption of white-label systems by Web/cloud service providers who account for an ever-growing portion of hardware usage. That might be motivating IT giants to explore consolidating, with the goals of becoming more efficient and pitching enterprise clients on end-to-end hardware/software/services offerings.
Sep. 11, 2014, 2:26 PM
- Analysts appear split on the viability of EMC's (EMC +0.5%) reported interest in selling its stake in VMware (VMW -0.6%).
- UBS analyst Steve Milunovich, who has a Buy rating on EMC, writes that "we increasingly believe something is up," and noting that EMC CEO John Tucci's contract is up next February, and while he may stay, it's possible the board is worried about the EMC/VMW federation if he departs.
- However, Wells Fargo says that while EMC selling its stake would provide a considerable cash infusion, the sale would not be tax free, and therefore "sub-optimal."
- Reuters is now quoting a source said to be familiar with the company's thinking that EMC is not considering a sale.
EMC vs. ETF Alternatives
EMC Corp supports the businesses and service providers to transform information technology (IT) operations to an as a service model (ITaaS). It operates in three segments: EMC Information Infrastructure, Pivotal and VMware Virtual Infrastructure.
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