Three years after buying virtualisation company VMware, EMC is selling off ten percent of the business. The funds will bolster VMware against forthcoming Microsoft competition… and keep EMC sharehoulders happy.

"We think now is the point where the planets are aligned and this makes sense," said EMC chairman, president, and chief executive Joe Tucci on a conference call with financial analysts. The initial public offering (IPO) will "unlock more of VMware's value for EMC shareholders," and help the company "retain and attract the software industry's top talent," he explained in a statement.

VMware has gone from strength to strength, expanding tenfold since EMC acquired it in 2004, going from 300 employees to 3,000. More than 10 percent of new x86 server workloads are running on VMware virtualisation software, and VMware is used by more than 20,000 customers, said VMware founder Diane Greene, now an executive vice president of EMC.

Analysts had speculated that EMC might completely spin off VMware, but it has decided to have its cake and eat (some of) it. "EMC wants to get some of the money while VMware is clearly a hot property," said Gordon Haff, principal IT advisor analyst firm Illuminata. "On the other hand, they clearly want to retain a very large chunk of VMware."

Tucci's comments about unlocking VMware's value "might be less politely phrased as 'hopefully getting the shareholders off my butt,'" he added. Investing in the product should be a priority at this stage because, though VMware is the market leader, Microsoft is expected to update its competing Microsoft Virtual Server product later in 2007.

The proceeds will "provide VMware with the financial resources it needs to achieve its full growth potential," said David Goulden, chief financial officer of EMC, and "provide EMC with the potential to return a portion of the original investment in VMware to EMC shareholders, while enabling them to continue to enjoy the vast majority ownership in this strategic and fast-growing business."

Virtualization, which allows a server to run multiple applications simultaneously, has helped businesses reduce the number of servers they need, reduce their energy consumption and assist in data centre disaster recovery efforts, said Greene. Co-founder Mendel Rosenbaum spoke to Techworld last year about the future of virtualisation.

The IPO should generate capital for VMware to invest in innovation, said Allan Krans, an analyst with Technology Business Research Inc. Although VMware is the industry leader in server virtualization software, Microsoft Corp. is expected to introduce an update of its Microsoft Virtual Server in the fourth quarter of 2007, which could increase competitive pressure on VMware.