As EMC, VMware, and Dell struggle to pull their $67 billion merger across the goal line, look for big cuts to come at VMware.
Update: The layoffs hit on Monday.
Sources close to the server virtualization giant said the company will lay off up to 900 people, or about 5% of its global head count, next week. VMware’s (VMW) fourth quarter earnings will be released Tuesday, January 26. According to its corporate facts page, Palo Alto, Calif.-based VMware employs about 18,000 people worldwide.
A VMware spokesman had no comment for this story. But cuts would not be unexpected. EMC (EMC), which owns about 80% of VMware, has already launched layoffs, which will cost about $250 million.
Dell-EMC Deal is Official
These changes emanate from the difficulty Dell and EMC have had getting investors, especially VMware investors, to swallow this deal. VMware is one of several “EMC Federation” companies, including RSA Security, VCE, and Pivotal. Cynics said that by buying EMC, Michael Dell is getting VMware at a bargain basement price, since VMware stock has outperformed EMC shares. Then, their thinking goes, he will turn around and sell off VMware at a profit, a scenario that left current VMware shareholders feeling ill used.
And hence the growing perception that the VMware tracking stock, planned as part of this deal, won’t be worth enough to make shareholders whole.
EMC and its federation companies have made moves to placate that constituency. EMC and VMware, for example, have already gone back to the drawing board with VMware chief executive Pat Gelsinger and EMC boss Joe Tucci, reversing plans to move VMware’s vCloud Air business into EMC’s Virtustream unit.
Not only that, EMC pulled VCE back into the mother ship earlier this month, naming Chad Sakac, head of EMC’s global systems engineering group, to replace VCE president Praveen Akkiraju, while retaining his current title. That move was reportedly accompanied by layoffs at VCE, which is now a business unit of EMC as opposed to a full sort-of-independent member of the EMC Federation.
The closing of big mergers and acquisitions is typically conditioned on the target companies hitting revenue or profitability goals. If sales aren’t flowing nicely, the only way to meet those goals would be cut costs. And that may be just what we’re seeing here.
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Other sources close to VMware could not confirm the 900 number, but said VMware has been shedding jobs through attrition and targeted layoffs already. Several high-ranking sales people in the New York metro area, for example are gone. Ditto some global sales managers.
What is that curse about living in interesting times?
Note: This story was updated at 7:53 a.m. on January 26 to reflect that the layoffs occurred.