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What Does Pivotal Initiative Mean For Vmware And EMC Corporation

 March 15, 2013 09:51 AM

(By Mani) The analyst day of VMware, Inc. and EMC Corporation focused, among others, on their joint venture Pivotal Initiative, which was formed to tap the rapidly growing big data and cloud application market.

EMC would hold 69 percent stake in Pivotal, with VMware retaining the rest 31 percent in the form of preferred shares and board seats. VMware has the right but not obligation to maintain its stake.

Pivotal was quantified as addressing a $17 billion opportunity in 2016, growing at a 30 percent rate. The 2012 total available market for Pivotal stood at $6 billion.

VMware will contribute about 500 people to the initiative, down from the 600 originally expected while EMC would contribute 750 employees. EMC said Pivotal eventually will be a public company similar to VMware once it shows predictable results, which sounds at least two years out.

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The new business is expected to have fiscal 2013 revenue of $300 million and increase to $1 billion by fiscal 2017, reflecting a compounded annual growth rate (CAGR) of about 35 percent. Pivotal is expected to become cash flow positive by 2015.

"Assuming that Pivotal could have revenue of $600M in FY/15 and command a $5–6B market cap, VMware's stake could be valued at ~$1.6–1.9B," RBC Capital Markets analyst Matthew Hedberg wrote in a note to clients.

Additionally, VMware will act as a sales agent for Pivotal and will account for the new company on its balance sheet in other assets. Meanwhile, 2013 should be a transition year for Pivotal as EMC expects to invest about $400 million to build out the platform.

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Effective April 1, VMware's "underutilized" layer 2 assets including vFabric, GemFire, Cetas, and Cloud Foundry will be transferred into the Pivotal initiative while EMC will contribute Greenplum, pivotal labs and cash.

Pivotal will focus on enabling development of next generation enterprise apps, as well as a Hadoop-centric analytic capability driven by Greenplum. EMC unit GreenPlum provides cloud abstraction and app automation in the emerging world of Hadoop, a Big Data platform.

On the other hand, Gemfire is focused on big data real time analysis while Spring is focused on rapid application development and integration.

Finally, CloudFoundry (incubated within VMware) provides a cloud abstraction layer and provides a cloud operating system that isolates the app from the cloud (i.e., enables apps to run to any cloud deployment such as AWS, private cloud, public cloud, etc).

Pivotal will target customers that need to build and use "next generation data repositories and analytics" such as telecom companies. Pivotal will also target customers that value real-time and high speed analysis along with helping reduce time-to-value in terms of building and analyzing large sets of data.

Also, Pivotal will provide choice in terms of what type of clouds choices for data. From a go to market basis Pivotal will focus on vertical partners and large service providers. Gartner's estimates for Enterprise Software include the Big Data infrastructure elements and imply a $100 billion market by 2015.

"The idea behind Pivotal is that both EMC and VMW had assets that were not going to be optimized buried within larger organizations and, from VMW's perspective, spinning off these assets frees up the company to focus on its core," UBS analyst Brent Thill said in a client note.

From a product perspective Pivotal HD a ‘next-gen data warehouse' was already launched in late February, and further product launches are expected in the second half of 2013. Pivotal HD, which is virtualized by VMware, along with HAWQ, represents the world's first true structured query language (SQL) processing for Hadoop, expanding the platform's reach to SQL programmers.



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