To Expand Cloud Services, EMC Buys Virtustream for $1.2 Billion

EMC, the Hopkinton, MA-based data storage titan, is buying privately held Virtustream for $1.2 billion as it builds out its cloud-storage services business and seeks to attract customers.

Virtustream is an enterprise-class managed cloud software provider that EMC believes will help it better deliver customers a hybrid cloud storage model. Hybrid cloud storage allows customers (in the simplest terms) to store privileged information in a private cloud, while also being able to access the computational power of a public cloud to run applications that need to access the private data.

EMC (NYSE: EMC) is using Virtustream to form a new managed cloud service business, EMC said. Bethesda, MD-based Virtustream was founded by CEO Rodney Rogers, who will report to EMC’s Chairman and CEO, Joe Tucci.

EMC has long used its own cloud storage applications, as well as those of VMware, a cloud software and virtualization company. EMC acquired VMware in 2004 and owns 80 percent of the company after the IPO of VMware in 2007. The acquisition makes EMC’s offerings far more extensive, according to Bill Fathers, executive vice president and general manager of the cloud services business unit at VMware(NYSE: VMW).

“With this comprehensive hybrid cloud solution, our customers will be able to run any application or workload from the cloud, whether private, managed or public,” Fathers wrote in a blog post.

A driving factor behind the acquisition is to replace stagnating revenues from EMC’s legacy businesses, according to multiple media reports. The company had $2.9 billion of revenue for the quarter ended March 31, 2015, down from $3.01 billion last year.

EMC cut revenue and profit forecasts in April after two quarters of slowing sales, Reuters says. It announced a restructuring plan in January that would result in employee layoffs, as well as a charge of $130 million to $150 million.

EMC has always been an active acquirer, noting in 2010 that M&A is a part of its growth strategy. Just last year, EMC purchased TwinStrata, another cloud-storage company, for an undisclosed price.

Even with the blockbuster sale of Virtustream, the number of exits in 2015 is down dramatically from last year, according to CB Insights. Virtustream, which counts The Coca-Cola Company, Domino Sugar, Heinz, and Kawasaki among its customers, had received almost $130 million in venture backing, most recently taking a $40 million Series D round in 2013.

David Holley is Xconomy's national correspondent based in Austin, TX. You can reach him at dholley@xconomy.com Follow @xconholley

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