EMC to Take VMware Stake Public

EMC(EMC Quote - Cramer on EMC - Stock Picks) will sell a 10% stake in VMware, its highly profitable virtualization software unit, via an initial public offering.

EMC will retain ownership of the remaining shares of VMware and "has no intention of spinning out or otherwise divesting this ownership interest," the company said after Wednesday's closing bell.

The move pleased Wall Street, and in recent after-hours trading, shares were up 86 cents, or 6.3%, to $14.46.

VMware had record sales in 2006, growing revenue 83% during the year to $709 million. It finished the fourth quarter of 2006 with year-over-year revenue growth of 101% -- the fifth quarter in a row in which the unit has shown accelerating year-over-year growth.

"We expect the IPO to unlock more of VMware's value for EMC shareholders while also strengthening its ability to retain and attract the software industry's top talent," said EMC CEO Joe Tucci.

Despite a generally strong performance, EMC has been under pressure from Wall Street. Even after a sharp run-up in the back half of 2006, the stock has only appreciated by 5% over the last two years, while the Nasdaq index has gained four times that amount.

VMware and the rest of EMC's growing software portfolio now account for about one-third of the storage giant's total revenue and an even higher percent of its profit.

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