VMware projects revenue hike, EMC unveils Pivotal plan

US-EMC-PIVOTAL:VMware projects revenue hike, EMC unveils Pivotal plan

By Sinead Carew

(Reuters) - Software company VMware Inc promised to boost its annual revenue growth as high as 20 percent in coming years, sending its shares up 7 percent on Wednesday morning.

The company, which is 80 percent-owned by data storage leader EMC Corp, was presenting at an investor meeting on Wednesday where the two companies also outlined their plans to set up Pivotal, a venture that will be majority-owned by EMC.

VMware said that the creation of Pivotal, a combination of both companies' data analytics and cloud application assets, would boost VMware's operating margins this year.

It said that revenue growth would increase to a range of 15 to 20 percent in 2014 to 2016. This compares with its expectation for a growth rate of 11.2 to 13.8 percent for this year.

FBR Capital Markets analyst Daniel Ives said it "appears the company is on the cusp of seeing a reacceleration of growth" and that 2014-2016 growth targets were "front and center" for investors, pushing the shares up.

VMware shares had fallen more than 21 percent on January 29 after investors were disappointed by the outlook for 2013. It also announced that day that it planned to cut 7 percent of its workforce.

At the same event on Wednesday, EMC Chief Executive Joe Tucci gave some details about the Pivotal venture.

It will initially be 69 percent-owned by EMC and 31 percent owned by VMware, but the eventual plan is to take Pivotal public and create its own equity so that it could attract some strategic investors.

Tucci also said that EMC will contribute money to the venture, which EMC and software maker VMware first announced in December, when they gave no financial details.

Tucci suggested that the structure would be similar to that of VMware, a spinoff from EMC that is publicly traded but still largely owned by EMC.

Pivotal will be made up of EMC's data analytics division, Greenplum, and its Pivotal Labs group, along with VMware's vFabric, SpringSource and Gemstone units. Also included in the new venture are VMware's data analytics company, Cetas, and CloudFoundry, a cloud computing platform.

Analysts had expected that the realignment could eventually result in a spin-out of the new group from EMC, the world's leading maker of corporate data storage equipment.

VMware shares were up 6.9 percent at $80.45 on the New York Stock Exchange on Wednesday morning. The stock was still well below its $98.32 percent close on January 28. EMC shares were up 2 percent at $24.95.

(Additional reporting by Nicola Leske in New York; editing by Gerald E. McCormick, Nick Zieminski and Matthew Lewis)

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