Dell spins off VMware to fuel post-pandemic PC growth opportunities

Dell Technologies has announced that it will spin off its 81% equity ownership of VMware, forming two standalone public companies.

According to the Wall Street Journal, this is worth around $52bn, and goes a long way to paying off the debt Dell accrued in its September 2016, $67bn purchase of storage giant EMC.

The spin-off will see the two businesses enter into a five-year commercial agreement to co-develop technology and products and align sales and marketing activities. Dell Technologies said VMware would continue to use Dell Financial Services to help its customers finance their digital transformations.

Michael Dell, the company’s chairman and president, described the spin-off as a new phase for Dell. “By spinning off VMware, we expect to drive additional growth opportunities for Dell Technologies as well as VMware, and unlock significant value for stakeholders,” he said.

Excluding VMware’s revenue figures, Dell said the company’s deferred revenue value was $25.1bn for the fiscal year 2021, which ended in Februay 2021.

During the investor call announcing the spin-off, he said: “As Dell enters a new phase, I have never been more optimistic about the opportunities ahead of us. By spinning off our ownership of VMware, Dell Technologies will drive additional growth opportunities for both Dell and VMware and unlock significant value for stakeholders. Both companies will remain important partners, providing Dell with a differentiated advantage in how we bring solutions to our customers.”

Discussing the pandemic, Dell described why he felt the technology sector is now in a much stronger position for growth and why Dell Technologies is primed and ready to take advantage of this opportunity as economies start to reopen post-Covid-19.

He said tech had become more relevant to everyone’s lives, adding: “We have only scratched the surface of what technology can do to make our world a better place, whether it’s developing vaccines faster than we thought possible, to keeping connected to each other across the globe, technology has moved us forward in our darkest times.”

Reflecting the general consensus across the tech sector, Dell said 2020 had supercharged technology trends that were well under way. “There is no going back,” he said. “Companies and organisations around the world recognise that digital transformation is more important now than ever.

“The dialogue with customers has also changed at the highest level. They want our help to drive better business outcomes and deploy new technologies and Dell is positioned to deliver. As customers focus on fewer strategic partners, we are rising to the top and we have a vantage position in the marketplace.”

According to Gartner’s latest PC market share data, Dell Technologies is the third-largest PC manufacturer, ahead of Apple. The company now sees huge potential to generate value in the PC business, an area of the IT market that had declined in growth before the pandemic. Now, with more people working and studying from home, there has been an increase in sales of notebook PCs.

Given that the renewal rate of notebook PCs is far faster than desktop PCs, Dell Technologies expects growth to accelerate. The company also linked growth in the PC market to demand in its server division, as PCs are never standalone – they generally connect to back-end servers, storage and network infrastructure, which the company’s ISG division caters for.

After completion of the spin-off, Michael Dell will remain chairman and chief executive officer of Dell Technologies, as well as chairman of the VMware board. Zane Rowe will remain interim CEO of VMware, and the VMware board of directors will remain unchanged.