Intel Buys Stake in EMC Unit

Intel(INTC Quote) will take a $218.5 million equity stake in VMware, a subsidiary of data storage firm EMC(EMC Quote).

The deal will give Santa Clara, Calif.-based Intel an approximately 2.5% ownership stake in VMware, which EMC plans to spin off in an initial public offering. The EMC unit makes software that lets computer servers simultaneously run multiple operating systems.

In addition to the equity stake, Intel also will appoint one of its executives to VMware's board of directors.

Intel's interest in VMware stems from the fact that the majority of computer servers running VMware's so-called virtualization software run on Intel microprocessors. This gives both companies an incentive to work together to make their products compatible.

Separately, on Monday, Palo Alto, Calif.-based VMware filed plans with the Securities and Exchange Commission to sell 33 million shares in its IPO between $23 and $25 each. The company estimates that the net proceeds from the sale will total $741.4 million.

The prospectus doesn't set a date for the IPO.

VMware will have two separate classes of stock, with EMC holding nearly all voting shares.

Virtualization has become popular in recent years as companies look for ways to use their information technology equipment more efficiently. Virtualization can help companies cut energy costs by running fewer servers and performing more computing tasks with existing equipment.

According to the prospectus, VMware had $258.7 million in revenue for the three months ending March 31, nearly double from the same period a year earlier. Roughly 66% comes from software licensing.

During the same period, VMware reported gross margins of 83%, the same as the year earlier. Operating income grew 53% to $46.4 million.