MDA - Market Direction Analysis

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How about this one?

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More on EMC and VMWare
Wednesday 17th December 2003


EMC's acquisition of VMWare is a truly bold and surprising move. VMWare has been the much sought after target of many potential acquirers. In case you are not aware, VMWare provides a virtualisation capability for x86 chip architectures (meaning chips from both Intel and AMD, but not Itanium as yet). The value proposition is 'utility computing' - the ability to set up multiple virtual machines within a single server. VMWare has some extremely positive case stories in this respect and has built up a head of steam in the market place both in the US and Europe.

Microsoft tried to negotiate an acquisition of VMWare a while ago, but VMWare was not easy to acquire - it was not a VC financed operation, so the founders had complete control over the destiny of the company. Similarly there have been rumours that both IBM and HP were interested in the company. Thus it is a considerable coup for EMC to have won this prize. The founders of VMWare must also have been happy with the $635 million deal, and not just because of the pay-off. VMWare was expected to move to IPO soon and the shareholders would have had ample opportunity to enrich themselves if they had wanted to pursue that route.

Is there any synergy between EMC and VMWare?. Well, there is some. For VMWare to operate with maximum effect on servers (it works on the desktop too) it really needs to sit over a SAN architecture. Technically, it is possible to move applications about from server to server (and VMWare can do this in a reliable way) but it is not possible to relocate data dynamically. You need a SAN.

However, the acquisition of VMWare has to be seen in the light of EMC's other recent acquisitions: Documentum and Legato. EMC is clearly building a software business - and doing it by acquiring what look to be very valuable assets. There can be little doubt that it will be building a services arm to exploit these too. EMC is beset with the problem that many successful hardware companies run into - it had saturated its primary market and needed to diversify or run the risk of stagnating and possibly declining as other vendors attack its prime market. EMC is pursuing an imaginative acquisition strategy. It is not an easy thing to pull off, but for now the signs are good. It will be interesting to see how well it does.

Robin Bloor
http://www.it-analysis.com/article.php?articleid=11530