VCE: Changes Under Way at VMware, Cisco and EMC Company?

Staffing adjustments and perhaps even layoffs may be under way at VCE, the virtual computing environment company launched by VMware, Cisco Systems and EMC Corp. Multiple channel partners tell The VAR Guy that VCE has been undergoing a reorganization and perhaps even staff cuts in recent weeks. Still, a recent SEC filing from EMC indicates that VCE’s momentum continues to build despite EMC recording an $88.4 million loss on VCE in the first half of 2011. Here’s the update.

First, the chatter: Three channel partners indicate that they’ve had VCE meetings canceled in recent weeks, with VCE insiders hinting that the company is adjusting its staffing focus. VCE’s most recent press release, issued July 26, still quoted Michael Capellas as CEO. VCE has not replied to a request for comment from The VAR Guy.

Meanwhile, the alleged VCE organizational changes come just as VCE was scheduled to ramp up its partner program. The company in May 2011 announced plans to work closely with four distributors: Arrow, Avnet and Ingram Micro in the United States, and Magirus in Europe. Plus, VCE is expected to have a strong presence at the upcoming VMworld conference (Aug. 29 – Sept. 1, 2011, Las Vegas).

Ingram has publicly stated that its work with VCE is moving forward, a good sign for VARs and MSPs that are seeking to leverage certified Vblock solutions for compute, storage, virtualization, networking and management.

EMC’s View

EMC’s 10-Q filing with the SEC, dated August 10, seems to indicate that EMC is pleased with VCE’s growth despite multi-million-dollar losses so far. In the filing, EMC indicates:

“Our portion of the gains and losses are recognized in other income (expense), net, in the Consolidated Income Statements. As of June 30, 2011, we have recorded net accumulated losses from VCE of $132.3 million since inception of which $46.6 million and $88.4 million were recorded in the three and six months ended June 30, 2011, respectively.

We perform certain administrative services, pursuant to an administrative services agreement, on behalf of VCE and we pay certain operating expenses on behalf of VCE. Accordingly, we have a receivable from VCE related to the administrative services agreement of $44.3 million as of June 30, 2011, which is included in other current assets in the Consolidated Balance Sheets.”

Elsewhere in the SEC filing, EMC indicates “momentum continues to build at VCE Company LLC, our joint venture with Cisco and investments from VMware and Intel, which offers the Vblock converged infrastructure product for building out cloud data centers.”

Cisco’s View

Meanwhile, The VAR Guy is waiting for Cisco Systems to file its latest 10-Q, which will offer deeper details on Cisco’s Q4 2011 earnings from August 10, 2011. But Cisco’s previous 10-Q, filed May 25, shows just how much money Cisco has been pumping into VCE. The May 25 Cisco filing stated:

“As of April 30, 2011, the Company’s cumulative investment in the combined VCE entity was approximately $100 million and it owned approximately 35% of the outstanding equity. The Company accounts for its investment in VCE under the equity method, and accordingly the Company’s carrying value in VCE has been reduced by $40 million, which reflects its cumulative share of VCE’s losses. Over the next 12 months, as VCE scales its operations, the Company expects that it will make additional investments in VCE and may incur additional losses, proportionate with the Company’s ownership percentage.”

Again, that Cisco statement was from May 2011; an updated Cisco 10-Q — recapping Cisco’s Q4 results announced August 10 — should reach the SEC website soon. In the meantime, The VAR Guy believes something is happening within the halls of VCE. The VAR Guy wonders if Cisco’s recent layoffs and cost-saving steps have influenced Cisco’s work with VCE. (Again, that’s pure speculation on The VAR Guy’s part.)

Our resident blogger reached out to VCE for comment on Aug. 12 but has not received a reply. Now, The VAR Guy is reaching out to Cisco, EMC and VMware for potential insights. If our resident blogger has any updates to share he’ll be sure to post a follow-up.