EMC, VMware Share Data Center Dreams

From the looks of things, rumors that EMC was considering a sale of its 84% stake in server virtualization market leader VMware were wrong.

If the companies’ leaders are to be believed–and there’s no reason to doubt them at this point–they see the fates of their companies as being inextricably intertwined.

Joe Tucci and Paul Maritz, CEOs of EMC and VMware respectively, both made presentations to financial analysts during the company’s annual strategy review in Boston. Charles King, principal analyst for Pund-IT Research, reported in a note distributed to clients that both men “emphasized the heightened value proposition of VMware and EMC’s combined efforts.”

Virtualization is becoming an extremely popular way of reducing capital expenditure because it allows customers to consolidate operating systems and applications on fewer physical machines.

EMC sees itself as an IT infrastructure company, focusing on storage–its bread and butter–as well as document management and virtualization. VMware is the server virtualization market leader, and is seeking to expand into thedata center virtualization, cloud computing and desktop virtualization markets.

So why would EMC conceivably sell? Steve Duplessie, principal analyst at Enterprise Strategy Group, noted that “VMware has a giant market valuation [around $10 billion], and EMC could raise a silly amount of cash if it sold its stake. But EMC is betting that it will be better off by holding onto VMware than by selling it.”

That’s a heck of a gamble, especially when considering that the market for virtualization is still in its infancy. VMware may be the de facto leader of server virtualization, but it will face stiff competion in adjacent markets.

“Those other areas are completely up for grabs,” Duplessie told me.

One of those “other areas” VMware will emphasize is data center virtualization–the idea that everything from storage to applications, networking and wordload management can be consolidated into what Maritz called a “software-based, 21st century mainframe.”

But Duplessie noted that IBM, with Tivoli, and and HP with OpenView, are among some of the other industry giants sure to vie with VMware for control of the data center. Cisco is also set to announce a new data center initiative next Monday.

And speaking of M&A rumors, Oracle is now rumored to be gunning for virtualization software vendor Virtual Iron, a privately-held company that could provide a complement to Oracle VM, Oracle’s in-house virtualization product.