Dell Spinning Off VMware as ‘Synergies Failed to Come to Fruition’

Dell Technologies is spinning off its VMware ownership in a move that comes as no surprise. Dell began exploring selling its stake in VMware as far back as last summer.

Dell’s 81% stake in VMware is valued at $52 billion, according to the Wall Street Journal, It plans to use the proceeds to pay down debt. The transaction should close in the fourth quarter of 2021.

Tied to the spinoff, Dell said VMware would pay a cash dividend of between $11.5 billion and $12 billion to shareholders. That includes $9.3 billion-$9.7 billion for Dell itself. Dell shareholders will get nearly than one-half (44%) of one share of VMware for each share of Dell they own.

Failed Synergies

Eric Parizo is principal analyst of Omdia’s cybersecurity operations intelligence service. Omdia is a global technology research and consulting company owned by Informa, the parent company of Channel Futures.

Omdia’s Eric Parizo

“From an enterprise security technology standpoint, it was originally thought that there would be some security solution synergies between Dell and VMware, both in endpoint and network security,” he said. “However, those synergies failed to come to fruition.”

Dell never seemed to favor VMware from a security perspective, Parizo said. It instead fostered many of its own initiatives, some of which have conflicted with VMware.

“While Dell recently announced a deal to unload RSA Security (like VMware, also acquired via the former EMC), Dell also owns managed security services provider SecureWorks, which has an endpoint security solution that competes with VMware Carbon Black, and offers network monitoring that competes with VMware Lastline,” he said. “Furthermore, Dell in 2019 announced a major go-to-market partnership with top Carbon Black rival CrowdStrike, offering CrowdStrike as an optional add-on for newly sold Dell desktops and laptops.”

For Dell’s security strategy, the move is largely inconsequential, Parizo said. But for VMware, it’s a “tremendous” opportunity. It gains full freedom to execute on its own security strategy. And its security product portfolio is quickly rounding into shape.

“Omdia believes VMware is poised to be one of enterprise cybersecurity’s top industry disruptors in the decade to come, due to its best-of-breed portfolio with technologies such as Carbon Black (endpoint), Lastline (network), and Workspace One (mobile), its opportunity to integrate its security technologies directly into its virtualization software platforms like NSX to ease consumption and delivery, and its strong incentive to leverage security to grow its total addressable market,” he said.

No Changes for Customers and Partners

Michael Dell is chairman of VMware’s board. He issued an open letter to customers and partners regarding the spinoff of VMware ownership.

Dell’s Michael Dell

“For you, our customers and partners, the way you engage with Dell Technologies and VMware doesn’t change,” he said. “Our joint momentum in road maps and innovation, and in sales and support, all move forward full-steam ahead. With this announcement, we will be even stronger. By simplifying the ownership and capital structures of Dell Technologies and VMware, we will unlock new opportunities to innovate and invest in our companies and across our ecosystems.”

In its 2021 partner program updates, Dell included more VMware opportunities for its partners. Solution provider partners can transact VMware licensing directly through the partner program with an aligned base rebate.

VMware and Dell will continue to collaborate and co-engineer solutions. And Dell will continue providing go-to-market scale for VMware’s product portfolio.

VMware’s Zane Rowe

Zane Rowe is VMware‘s chief financial officer and interim CEO.

“We will have an enhanced ability to extend our ecosystem across all cloud vendors and on-premises infrastructure vendors, and a capital structure that will support growth opportunities,” he said. “Our strategic partnership with Dell Technologies remains a differentiator for us.”