Worcester Business Journal

www.wbjournal.com February 16, 2015 • Worcester Business Journal 11 off its virtualization division, VMware. EMC bought VMware in 2004 and holds 80 percent of its stock. The sub- sidiary is growing considerably faster than the parent company, with reve- nues rising 16 percent over the past year compared with 2 percent for EMC's core information infrastructure business. A third division, the data ana- lytics company Pivotal, is growing quickly but remains a small part of the corporation. Daniel Ives, an analyst with FBR Capital Markets & Co., said EMC's majority ownership of VMware may make both companies appear less valu- able to investors than they otherwise would. Ives noted that other big tech companies, including Hewlett-Packard (HP) and eBay, recently announced plans to spin off divisions, hoping to unlock more shareholder value. "From an investor perspective, the reason these splits or spinoffs are so important — there's more of a distinct valuation to each piece," he said. "By owning a majority amount of (VMware), the value really hasn't been captured in EMC's stock price." Ives said that, if freed from its ties to EMC, VMware stock would gain value. At the same time, he said, the core EMC business could also benefit from a renewed focus on faster growth in such areas as cloud storage, big data and cybersecurity. "It's like a football team that's not doing well," Ives said. "Do you change the players? Change the coach? Something needs to change in the view of the man on the street, just given the sluggishness and the inconsistency we've seen over the last 18 months." In response to a question about the demands from Elliott, EMC spokes- woman Katryn McGaughey cited a recent statement by Tucci in which he said management has "a very open dia- logue with Elliott, as we do with a lot of shareholders." Tucci also defended EMC's current structure when he spoke at an invest- ment conference in November. He argued that the company's array of products and services can be combined to provide better solutions for custom- ers. The company has scheduled a forum on March 10 to discuss strategies and products, though Tucci said it won't involve the structural questions. In EMC's most recent earnings call, its executives pointed out efforts to grow all parts of the firm. David Goulden, CEO of the Information Infrastructure business, said its 2 per- cent growth over the past year was bet- ter than competitors' performance. He said EMC has benefitted from its ability to help customers move from tradi- tional data centers to new kinds of stor- age systems. Revenue from the compa- ny's "emerging storage" products grew 52 percent for the year. CFO Zane Rowe also argued that EMC's three divisions add up to more than the sum of their parts. "The ability of Pivotal, VMware, and EMC Information Infrastructure to work closely together results in differ- entiated solutions with broad transfor- mative capabilities," he said. "This inte- grated solution capability opens up the potential for large $100 million-plus long-term opportunities with custom- ers that would be more difficult to address separately." EMC has been looking at various ways to move forward, given the rela- tively stagnant market for traditional storage. In September, The Wall Street Journal reported that the company had held talks with both Dell and HP about merger possibilities, although nothing came of the conversations. Meanwhile, in a move similar to ones it made at the start of both 2013 and 2014, the company announced a restructuring plan in January, saying it would cut an unspecified number of jobs during the first quarter of the year. Spokeswoman McGaughey said in an email that EMC is "balancing and orga- nizing our workforce to best align with our key growth opportunities," but she said the move is "not a cost-cutting exercise." She said the company is add- ing positions in fast-growing areas as it cuts from more stagnant divisions, and will work to move displaced employees to the growing parts of the company. For investment analysts, reaction to that announcement was a collective shrug. Rob Cihra, of Evercore Group LLC, said most interested investors are watching to see what happens with VMware. "I think it's debatable whether the current ownership structure of owning 80 percent of VMware makes sense long term," he said. "Obviously man- agement thinks it does, but I think there are valid questions from an investment standpoint whether it does or not. I think most investors would rather spin it out." Whether those investors will eventu- ally win out remains to be seen. n Under investor pressure, should EMC stay on its course? >> Continued from Page 1 Productions Revelation Creative & Technical Event Services Revelation Productions offers brilliant technical and creative services that are seamlessly orchestrated, resulting in an exceptional event for you and your audience. • Audio • Video • Lighting • Event Management • Staging and Scenic Design • Temporary Power Distribution Preview our portfolio of corporate events and gala affairs online at revprod.com www.revprod.com 14569_WBJ_9x6_Ad.indd 1 2/10/15 4:54 PM 0 $5,000 $10,000 $15,000 $20,000 $25,000 2010 2011 2012 2013 2014 EMC Information Infrastructure VMware Pivotal REVENUE In millions Over the last five years, VMWare has taken in an increasingly larger percentage of EMC's revenue. EMC and VMware Source: EMC Corp. filings with Securities and Exchange Commission (SEC)

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