EMC, the world’s biggest maker of data storage equipment and software, announced plans on Wednesday to float a 10 per cent stake in VMWare, its fast-growing software subsidiary.
The move, which comes as EMC is under pressure to translate VMWare’s strong revenue growth into share price gains, set the stage for what is likely to be one of the most sought-after software initial public offerings in recent years.
“VMWare is one of the fastest-growing businesses in the history of the software industry,” said Joe Tucci, EMC’s chief executive. “We expect the IPO to unlock more of VMware’s value for EMC shareholders while also strengthening its ability to retain and attract the software industry’s top talent.”
EMC will keep a 90 per cent stake in VMWare, which will operate as a public company after the IPO.
VMWare, which is wholly owned by EMC but has operated as a stand-alone business since it was acquired in 2004, is on track to become one of the fastest companies in the history of the software business to hit $1bn in annual revenues.
The group, which was founded in 1998, took in $709m in sales last year, up 83 per cent from the year before, according to EMC.
VMWare’s strong growth comes amid demand for the company’s “virtualisation” software, which allows multiple computing tasks to run on a single machine. By spreading computing tasks around a network of “virtual machines”, companies can save money while boosting productivity. Strong demand for such software led VMWare sales to more than double last quarter.
EMC said it expected the flotation to take place this spring. The company said it did not expect the IPO to have a significant impact on its financial performance.
EMC said it had “no intention” of spinning out or selling its remaining 90 per cent stake in VMWare.
Mr Tucci, who is expected to be named to the VMWare board, on Wednesday reiterated EMC’s commitment to VMWare’s “open platform” strategy, which allows its software to run on computers using an array of hardware and operating systems.
He said: “VMware’s open platform strategy is critical to the growth of virtual infrastructure as an industry standard layer that benefits all customers and partners.”
EMC chose to operate VMWare as an independent entity, partly to allay fears that the company’s acquisition could lock potential VMWare customers into EMC hardware.
David Goulden, EMC’s chief financial officer, said the proceeds from the VMWare IPO would provide the company with “the financial resources it needs to achieve its full growth potential”.
He said it would also allow EMC to return some of its investment in VMWare to EMC shareholders, while allowing the group to keep a majority stake in the company.