* EMC promises $1 bln revenue from Pivotal by 2017
* Eventual plan is to take Pivotal public
* VMware ups oper margin outlook, 2014-16 rev growth target
* VMware shares rise as much as 9.6 pct
(Adds executive comment, company details, updates share prices)
By Sinead Carew
March 13 Software company VMware Inc
promised annual revenue growth as high as 20 percent by 2016
and, with parent company EMC Corp, announced a new
venture with a $1 billion revenue target, sending shares of both
Pivotal Inc will include VMware's Cloud Foundry application
service, as well as EMC's Greenplum data analytics software and
other products. EMC, the world's biggest maker of data storage
equipment, owns 80 percent of VMware.
Both companies are hoping that the new Pivotal will cash in
on an expected jump in demand for data analytics software as
companies like telecom service providers want better tools to
analyze masses of data from multiple different technology
The venture, which will be majority-owned by EMC and
eventually plans to go public, is expected to generate $1
billion in revenue by 2017 and will require investments of $400
million this year and next year, according to EMC.
VMware said the creation of Pivotal, a combination of both
companies' data analytics and cloud application assets, would
raise VMware's 2013 operating margins.
Growth in VMware's remaining businesses will increase to a
range of 15 to 20 percent in 2014 to 2016 from its expected
growth rate of 11.2 percent to 13.8 percent in 2013, according
to the company. It cited new technologies such as
software-defined networking, the use of software to manage
networks, and cloud computing for the growth acceleration.
FBR Capital Markets analyst Daniel Ives said it "appears the
company is on the cusp of seeing a reacceleration of growth" and
that 2014-2016 growth targets were "front and center" for
investors, pushing VMware shares up as much as 9.6 percent on
VMware shares had fallen more than 21 percent on Jan. 29
after investors were disappointed by its outlook for 2013. It
had also announced late on Jan. 28 that it planned to cut 7
percent of its workforce.
WORKING 'LIKE A FATHER AND SON'
At the same event on Wednesday, EMC Chief Executive Joe
Tucci gave some details about the Pivotal venture.
EMC will initially own 69 percent and VMware will own the
remaining 31 percent, but the eventual plan is to take Pivotal
public and create its own equity so that it could attract some
Tucci also said that EMC will contribute money to the
venture, which EMC and VMware first announced in December, when
they gave no financial details.
Tucci suggested that the structure would be similar to that
of VMware, a spinoff from EMC that is publicly traded but still
largely owned by EMC.
FBR's Ives said this was the right structure for Pivotal,
which is the "right strategy at the right time" for the pair.
"It's like a father and son (EMC and VMware) working
together on an initiative," he said. "The companies have worked
very closely together, which is a positive in terms of execution
risk going forward."
Pivotal is expected to have about 1,250 employees from both
EMC and VMware.
EMC strategy executive Paul Maritz said he has some hope
that the $1 billion revenue target proves to be "conservative."
He gave examples of how companies such as telecommunications
service providers could use Pivotal's technology.
He said it could be used to create a link between network
performance data and customer service information so that
operators could immediately tell if a specific customer had been
suffering from dropped calls.
Maritz said carriers will be able to use Pivotal to analyze
such data on the fly, whereas existing systems "would take them
days to answer that question" because network data systems and
customer data systems "don't talk to each other today."
Pivotal will be made up of EMC's data analytics division,
Greenplum, and its Pivotal Labs group, along with VMware's
vFabric, SpringSource and Gemstone units. Included in the new
venture are VMware's data analytics company, Cetas, and
CloudFoundry, a cloud computing platform.
VMware shares were up 9.2 percent at $82.21 on the New York
Stock Exchange on Wednesday afternoon. EMC shares were up 2.2
percent at $25.01.
(Additional reporting by Nicola Leske in New York,; editing by
Gerald E. McCormick, Nick Zieminski, Jan Paschal and Matthew