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(Reuters) - Data storage products maker EMC Corp EMC.N resisted pressure from activist investor Elliott Management Corp to spin off its VMware Inc (VMW.N) virtualization software unit, saying that keeping the companies together helps in winning business.
EMC's shares rose 3.8 percent to a two-year high of $29.59 on the New York Stock Exchange on Wednesday.
"Spinning out one of your most strategic assets (VMware), I don't know another tech company that has done that and been successful," EMC Chief Executive Joe Tucci said on a conference call with analysts.
Elliott has invested more than $1 billion in EMC with an aim to push it to spin off VMware, sources have said.
Tucci said he agreed with Elliott that EMC was undervalued and that he was ready to meet the hedge fund to hear its proposals.
Elliott is expected to argue that EMC's structure has hampered its share's performance. The stock gained just about 1 percent in the three years to Friday's close, while the S&P 500 Index rose 50 percent in the period.
"The question is how to capture that value and make sure shareholders get it," Tucci said.
EMC also raised on Wednesday its 2014 share buyback program to $3 billion from $2 billion.
EMC defended its corporate strategy, saying it helped the company provide products and services that work seamlessly and sell newer products and software services as businesses shift to faster and cheaper technologies.
The company has three main business units: Information Infrastructure, its core data-storage unit and security firm RSA Information Security; VMware, a maker of server computing software; and Pivotal, a cloud computing software maker.
EMC raised its full-year adjusted profit forecast by 1 cent to $1.91 per share, slightly above the average analyst estimate of $1.90, according to Thomson Reuters I/B/E/S.
"The share buyback increase is a positive, although I would have expected the full year EPS to be raised further given the EPS beat by (1 cent) in Q2 and the reduction in shares due to the buyback," Macquarie Securities analyst Rajesh Ghai told Reuters.
EMC earned 43 cents per share in the second quarter ended June 30 and reported a better-than-expected 5 percent rise in revenue, helped by higher sales of newer flash storage products and VMware subscription sales. (bit.ly/1rK1xra)
Sales rose 52 percent at EMC's emerging storage unit, which makes network-attached, cloud and all-flash storage products.
EMC is trying to boost growth by focusing on products such as flash-based storage and software-based technologies as businesses cut back spending on high-end storage to explore cheaper options.
"(Results) should give investors some optimism that the company's next-generation datacenter vision is starting to play out in the field," FBR Capital Markets analyst Daniel Ives said.
EMC's shares were up 1 percent at $28.81 in noon trading.
Additional reporting by Liana B. Baker; Editing by Maju Samuel and Kirti Pandey