{"id":115253,"date":"2020-09-03T11:40:10","date_gmt":"2020-09-03T15:40:10","guid":{"rendered":"http:\/\/rbach.net\/?p=115253"},"modified":"2021-06-14T20:50:56","modified_gmt":"2021-06-15T00:50:56","slug":"dell-to-spin-off-vmware","status":"publish","type":"post","link":"https:\/\/rbach.net\/index.php\/dell-to-spin-off-vmware\/","title":{"rendered":"Dell to Spin off VMWare?"},"content":{"rendered":"\r\n

\"Layoffs<\/a>Updated 09\/16\/2020 –<\/strong> Layoffs are coming to Dell Technologies<\/strong>. Bloomberg<\/em><\/a> reports<\/a> that during it\u2019s last quarterly all-staff meeting, Dell workers were told that company-wide workforce reductions<\/strong> were coming. A Dell spokesperson announced<\/a>,\u00a0 \u201c\u2026 we\u2019re addressing our cost structure to make sure we\u2019re as competitive as we should be now and for future opportunities \u2026 we\u2019re doing what\u2019s best for the long-term health of our company and our team.<\/em>\u201d<\/p>\r\n

Dell has already taken a number of people cost-cutting measures<\/a><\/strong>. It has suspended 401(k) matching, bonuses, and promotions for the fiscal year. The firm had previously announced that 60% of its workforce will WFH<\/strong> or be in the office one or two days a week. Dell will provide a one-time stipend of $400 for home-office equipment.<\/p>\r\n

However, over at VMware, which is 81% owned by Dell, there is a different pain. VMware<\/strong> has told its employees they can move away from Silicon Valley<\/strong> and work remotely on a permanent basis. However, VMware may cut their pay<\/strong> should they chose to move to a less expensive location. Employees who move could face salary cuts of 8% -18%<\/strong> Bloomberg reported.\u00a0 A VMware spokesperson emailed SDXcentral<\/em>,<\/p>\r\n

\u2026VMware is building a dynamic, global workforce of the future where our people have choice and flexibility to work from any location … VMware is dedicated to equitable pay for its workforce, not by only race and gender, but also work location or geography.<\/em><\/p>\r\n

—<\/p>\r\n

\"Dell<\/p>\r\n

The rumor mill is grinding on Dell and VMware<\/strong> again. Back in June 2020, the WSJ<\/a><\/em> reported<\/a> that Round Rock, TX-based Dell Technologies<\/a>\u00a0(DELL<\/a>) was exploring the idea of spinning off\u00a0its $50 Billion<\/strong> – 81% ownership stake in VMware<\/a>\u00a0(VMW<\/a>). But the dust settled on that speculation until recently<\/p>\r\n

\"VMware<\/a>During the 08\/27\/2020 Q2 earnings call, VMware CEO<\/strong> Pat Gelsinger said his company was in discussions<\/strong> with parent-owner Dell about a possible spin-off<\/strong>. According to a Seeking Alpha transcript<\/a>, CEO Gelsinger said,<\/p>\r\n

I want to acknowledge the recent Dell Technologies 13D filing about their considerations of a potential VMware spin-off … our Board has formed a special committee … and we are in discussions with Dell.<\/em><\/p>\r\n

Potential spin-off<\/h3>\r\n

\"Dell<\/a>CEO Gelsinger sought to assure current VMware customers.<\/strong>\u00a0“We have over a year to go as any potential spin-off would not occur prior to September 2021.”\u00a0<\/em>The potential spin-off would be designed to “unlock the full value<\/strong> of Dell\u2019s hardware business and VMware\u2019s software business<\/em>.” As of 09\/01\/2020, VMware\u2019s market cap ($59.2B) overshadows Dell\u2019s ($49.17B) market cap.<\/p>\r\n

In June 2020 statement Dell said:<\/p>\r\n

Dell Technologies believes a spin-off could benefit both Dell Technologies and VMware shareholders, team members, customers and partners by simplifying capital structures and creating additional long-term enterprise value. …\u00a0 Any potential spin-off<\/strong> would …\u00a0 be intended to qualify as tax-free for U.S.<\/strong> federal income tax purposes.<\/em><\/p>\r\n

VMware Solid second-quarter results<\/h3>\r\n

\"COVID-19\"<\/a>Fierce Telecom<\/em>\u00a0reports<\/a> that VMware posted solid second-quarter results in the face of headwinds from the COVID-19 pandemic<\/strong>. On-premise revenues were down to the pandemic. However, VMware’s subscription and software-as-a-service (SaaS) revenue was up 44% from a year ago. SaaS revenue was $631 million and accounted for 22% of its total revenue in Q2.<\/p>\r\n

VMware reported second-quarter earnings of $447 million, or $1.06 per share, on revenue of $2.88 billion. The results were an increase of 9% year over year from $2.63 billion. VMware CEO Gelsinger commented, “I do think, as we’ve indicated, that COVID has been a bit of a headwind for on-premise, growth … particularly in the Americas.”<\/em><\/p>\r\n

Looking forward, Mr. Gelsinger foresees uncertainties into 2021 due to COVID-19<\/strong>.<\/p>\r\n

We do think that the environment remains a pretty uncertain. … we expect Q3 to still be challenging with recovery in Q4 and Q1 and into next year<\/strong> … we still think that (there are) several quarters of recovery until we’re back to a more normal economic environment.<\/em><\/p>\r\n

rb-<\/em><\/strong><\/p>\r\n

The deal makes sense for the big-wigs. Big-wigs that will profit from the venture include Dell CEO Michael Dell and his venture capital backers. PE firm Silver Lake<\/a>\u00a0owns about 100 million shares of Dell<\/a>, worth over $5 billion.\u00a0CRN<\/a> suggests<\/a> that the deal could shift Dell\u2019s $48 billion in long-term debt<\/strong> elsewhere, potentially to VMware<\/strong>.<\/em><\/p>\r\n

What are the risks to VMware’s enterprise customers? CEO Dell claims he expects to formalize agreements between the step-children. The agreements would allow \u201congoing strategic benefits and continued support for customers of both companies following any spin-off.\u201d\u00a0<\/em><\/p>\r\n

The firms have tightly integrated Dell hardware with VMware software. In the face of a COVID-19 recession<\/a> well into 2021<\/strong> enterprise customers are going to be pretty risk-averse.<\/strong> Customers are going to have to take whatever price increases VMware imposes <\/b>to cover the new debt.<\/em><\/p>\r\n

There are lots of people available with strong VMware skill-sets. Moving a firm’s infrastructure off VMware<\/strong> to a private or hybrid cloud environment as a managed service would require different IT operating models and skill sets that would probably cost a lot to set up and support.<\/strong>\u00a0<\/em><\/p>\r\n

Stay safe out there!<\/a><\/strong><\/em><\/p>\r\n

Related article<\/strong><\/p>\r\n