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VMware Shares Surge on Talk of Stock Buyback

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Pat Gelsinger, CEO of VMware.Photograph by Ronda Churchill — Bloomberg/Getty Images

VMware stock price got a bit of a reprieve Tuesday after the company announced plans for a $1.2 billion share buyback on its first-quarter earnings call Tuesday night. Shares were up nearly 10%, or $5.24 to $56.69, at one point in after-hours trading.

That’s good news after months of downward trajectory in the wake of last October’s news that Dell is buying VMware parent company EMC (EMC). On October 9, 2015, the Friday before the Dell-EMC deal was announced, VMware was trading at nearly $80 per share. It hasn’t reached those heights since.

Many VMware (VMW) shareholders felt that Michael Dell, in buying EMC, was getting VMware at a bargain basement price.

The stock repurchase is expected to take place after the EMC shareholder vote on the Dell deal, slated for May 12. By taking shares out of circulation, VMware hopes to increase their value.

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In the months since the Dell deal was made public, VMware and EMC have announced layoffs and other cost-cutting measures.

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Also on the call, VMware chief executive Pat Gelsinger said the company’s cloud deal with IBM, which makes it easy for customers to take applications running on VMware vSphere in-house and run them in IBM’s (IBM) Softlayer cloud (which is running VMware technology), is already gaining traction.

“We believe that IBM has already closed a number of deals,” Gelsinger said. IBM brings a “tremendous pipeline of opportunity.” As reported by Fortune, IBM wasn’t the only company wanting a cloud alliance with VMware. Google (GOOG) hoped to cement its ties with VMware with a similar deal, which did not happen.

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VCloud is VMware’s cloud software, and with vCloud Network VMware claims thousands of third-party service providers are offering services based on vCloud Air to their customers. The concept is tricky for VMware because it sells vCloud Air itself, thus setting up conflict with its own partners in the field.

This story was updated at 9?10 a.m. EDT to add VMware’s share price as of October 9.