EMC & VMware: Together Forever

EMC will not be carving off any more of VMware and will keep a tight hold of its virtualization cash-cow
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EMC

(EMC)

has no intention of relinquishing its controlling stake in its lucrative

VMware

(VMW) - Get Report

subsidiary, according to

CEO

Joe Tucci.

Speaking at a meeting for EMC's institutional investors that was webcast on the Internet, Tucci sought to dispel speculation that the storage giant could divest more of the

virtualization pioneer

.

EMC spun off 10% of VMware in a 2007 IPO but still owns around 86% of the virtualization pioneer, with

Cisco

(CSCO) - Get Report

and

Intel

(INTC) - Get Report

as minority stakeholders. Some analysts, however, have urged EMC to carve off more of its subsidiary, particularly when volatile movement in VMware shares has weighed heavily on the storage giant's stock.

"I will end all the angst; we have no intention of separating these two companies," said Tucci. "We will get more leverage doing it the way we do it."

EMC's shares surged 78 cents, or 7.92%, to $10.63 in Wednesday trading, outpacing a broader advance in tech stocks that saw the Nasdaq rise 6.59%. Investors also warmed to VMware's shares, which rose $2.19, or 10.98%, to $22.14.

Virtualization software

, which lets multiple operating systems run in the same computer, has become synonymous with VMware in recent years. Touting its technology as a way for users to streamline their hardware infrastructures, the software company has risen from relative obscurity to more than 130,000 customers in just over a decade.

VMware has also enjoyed

rapid revenue growth

since its 2007 public offering, underlining the growing popularity of virtualization.

To illustrate VMware's importance to EMC, Tucci told investors that for every dollar spent on virtualization software, another three dollars are spent on related storage systems. By selling $1.2 billion worth of software licenses last year, he added, VMware opened up a potential storage market of $3.6 billion.

"We drove virtualization mainstream, which is crucial to our success," Tucci said. "There's virtually not an application that can't run on a virtual infrastructure environment today."

With storage fast losing its

recession-proof

reputation, EMC's decision to hitch itself to VMware's star could be a shrewd one.

EMC, for example,

took a profit hit

recently after the firm announced a plan to shed about 7% of its workforce.

Even VMware, however, has felt the strain of the economic slowdown, recently issuing a

weaker than expected

first quarter forecast.

EMC also touched on some of its strategy during the investors' meeting, with Tucci explaining that the firm is planning announcements around Flash technology.

"There's a lot of technologies that have promise, but the one that can win for the short and medium term, maybe the longer term, is Flash," he said, promising to offer more Flash-based systems.

EMC first deployed Flash-based solid state disks into its DMX-4 system just over a year ago and is touting the technology as a high-speed alternative to traditional drives.

"When we announced Flash a year ago, a Flash drive was 40 times more expensive than the fastest Fibre Channel drive," he said. "In a year that price has declined 76%

and it's still 30-plus times faster

than Fibre Channel."

VMware also discussed its roadmap during the investors' meeting. The firm will start shipping its new VSphere software in 2009, according to VMware CEO Paul Maritz, who described the technology as a "virtual data center operating system."

"This is tricky software to do," he said, explaining that more than 2,000 VMware R&D specialists have been working on the project. "We have worked very hard to make sure that

the software can scale to the highest levels -- we will be able to handle literally the most demanding loads in the data center."