The next $1bn step in EMC’s ‘work in progress’

Earlier in his career, Joe Tucci, CEO at information infrastructure company EMC, had a well-deserved reputation for bringing flat-lining businesses back to life. But Tucci’s agenda since restoring EMC to health in the first half of this decade has been something rather different: he intends to transform the company’s business entirely.

It is, as Tucci freely admits, a work still in progress. The financial foundations are in place: its share price trades at a five-year high, and revenues for 2006 were up 15% to $11.16 billion. And while those figures have been inflated by a series of acquisitions, performance across EMC – including in its core storage business – has been strong, despite the inevitable upheaval of acquisition integration.

The four year spending spree has provided what Tucci describes as “spheres” to augment that original storage business. These spheres go in to building all the necessary components needed for an intelligent information management system, he explains: content management; access management; virtualisation; and resource management. (The foundation for these were the acquisitions of Documentum, RSA Security, VMware and SMARTS, respectively.)

Tucci believes that having assembled these pieces, EMC is well on the way to transforming itself from a storage systems company to an information management company. An alternative view of the transformation is that EMC has evolved from being simply a high-end box shifter to a company with a rich – and profitable – hardware, software and services business.

Having spent more than $4 billion on acquisitions during his tenure, Tucci now says that for 2007 at least, he won’t be adding any more ‘spheres’. Instead he wants to concentrate on adding point technologies. That means making acquisitions such as the June 2007 deal for privately-held ID authentication company Verid (see M&A section) which will flesh out the RSA portfolio.

As that underscores, EMC is certainly a very different company to the one that Tucci inherited in January 2000. But is it a coherent business? The vision of an information management vendor is one thing, but the apparently ad-hoc approach taken to integrating its acquisitions has prompted some commentators to question whether EMC has in reality become a front for an aggregation of loosely-related products.

The most obvious anomaly is its server virtualisation unit VMware. Its dominance of the white-hot market for virtualisation software shows in its revenue run rate for 2007 of $1 billion plus, after it reported a doubling of revenues to $258.7 million in its last publicly disclosed quarter (to 31 March). But VMware’s popularity has little to do with its ownership by EMC. Indeed, its value to EMC would be markedly lower if it was made a tightly-integrated proprietary part of the company’s storage unit.

In recognition of that wider value, Tucci is looking to spin off VMware – at least partially – with plans for an initial public offering of 10% of the company (32.5 million shares) later in 2007. By limiting the availability of stock, EMC is likely to heighten what will already be strong demand for a slice of VMware.

Given that VMware already holds around $300 million in cash, the money raised in the IPO will likely end up in EMC’s coffers, giving Tucci plenty of opportunity to go shopping for assets that align more closely with EMC’s information management universe.

Henry Catchpole

Henry Catchpole runs Inform Direct, a company records management software company which simplifies the process of dealing with Companies House. The business was set up in 2013.

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