Intel Buys Stake in EMC Unit - TheStreet

Intel Buys Stake in EMC Unit

VMWare sees of IPO of more than $700 million.
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(INTC) - Get Report

will take a $218.5 million equitystake in


, a subsidiary of data storage firm




The deal will give Santa Clara, Calif.-based Intel an approximately2.5% ownership stake in VMware, which EMC plans to spin off in aninitial public offering. The EMC unit makes software that letscomputer servers simultaneously run multiple operating systems.

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

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

Separately, on Monday, Palo Alto, Calif.-based VMware filed plans withthe

Securities and Exchange Commission

to sell 33 million shares in its IPO between $23 and $25 each. The company estimates that the netproceeds 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 holdingnearly all voting shares.

Virtualization has become popular in recent years as companies lookfor ways to use their information technology equipment moreefficiently. Virtualization can help companies cut energy costs byrunning fewer servers and performing more computing tasks withexisting equipment.

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

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