EMC's Joe Tucci on the VMware IPO
Fortune's David Kirkpatrick talks with the EMC CEO on his decision to take part of the storage firm's hot software company public.
NEW YORK (Fortune) -- Three years after storage giant EMC bought software firm VMware for around $600 million, EMC CEO Joe Tucci says he thinks the company may now be worth ten times that. And he wants to let the world see how amazing is his software asset, now thought by many to be the fastest-growing large software firm on the planet.
"EMC shareholders own this company, and there's trapped value there," says Tucci, who clearly doesn't think investors have understood up to now how successful the combination of EMC and VMware has been. "Now people can realize how great that trapped value is."
VMware, which is by far the world leader in software for "virtualizing" an x86 server, enables customers to get more productivity out of their computers. Virtualization puts multiple separate computing environments, in effect, onto each individual chip. That allows companies to run their computer infrastructures far more efficiently.
Tucci points out that the average customer of an Intel (Charts) or AMD (Charts) x86-based server is only utilizing about 15 percent of that computer's power on a given day. VMware helps customers bring that portion up, reducing the number of computers a company needs to operate, simplifying operations and maintenance, and saving energy.
As for the IPO, Tucci says "the key thing is that we are not spinning it off," emphasizing the "not." "We have no intention of that," he continues. "We're selling a minority interest and EMC will keep a super-majority of the shares. VMware will still get the benefits of being in the EMC family but its value will be more transparent."
Among the benefits he foresees and considers critical, he says, will be the ability to hire and retain VMware executives with stock and options in that company, "so we can beef up this management team and take this company into the billions."
When EMC bought VMware three years ago, its revenues were less than $100 million. Today the company said that in 2006 revenues had already risen to $709 million, and as of the fourth quarter those revenues were growing at a 101 percent rate, and accelerating.
VMware is one of several major software acquisitions EMC has made in recent years, all of which have significantly helped the company's business, says Tucci. The other big ones include security company RSA and document-management firm Documentum.
One of the other benefits of the IPO, says Tucci, is to underscore that VMware's technology, however valuable it has been to EMC, will not be used exclusively to its own benefit. "I've already explained that to [Symantec (Charts) CEO] Thompson, [Hewlett-Packard (Charts) CEO] Hurd, and [IBM (Charts) CEO] Palmisano," he says.