EMC's $1.2B Virtustream Acquisition Takes It Deeper Into Services

One EMC official recently said it wasn’t "your father’s EMC," and the company has now made a big acquisition that illustrates the point. The IT giant is acquiring cloud service provider Virtustream for $1.2 billion in a bid to strengthen cloud services offerings. Virtustream will operate as a managed cloud services business arm of EMC following transaction close.

EMC continues to distance itself from the image of a legacy enterprise storage company. It recently open sourced a key software defined storage controller called ViPR and released a free edition of the converged infrastructure software ScaleIO. Both of those moves suggest it sees its value in services and not necessarily in technology alone. With the Virtustream acquisition, it moves even deeper into services.

Virtustream was founded in 2009. The company is focused on enterprise cloud in particular, meaning it provides hybrid cloud solutions with an emphasis on moving and managing mission critical and production applications, with all the security, compliance, and performance SLAs required by enterprises.

Virtustream’s stack is based on its xStream cloud management software for private, public, and hybrid clouds powered by Virtustream µVM technology.

Investor Elliott Management is likely to have played a role in EMC’s evolution. Elliott and EMC have what could be called a tough-love relationship, albeit a healthy one. The two have feuded over what to do with VMware in particular: Elliott requesting to spin it off, while EMC wants to retain its 80 percent controlling stake.

The back-and-forth between company and investor is ongoing, but the two are playing nice. Pressure from EMC’s fifth largest stakeholder and the addition of two Elliott folks to its board are likely working behind the scenes to evolve the tech giant.

The transition is a necessary one, and the Virtustream acquisition lays the foundation for things to come. EMC’s sales growth has slowed for two consecutive quarters, and all of its fellow technology giants are going hard into services to offset decline of traditional technology sales.

The acquisition is expected to close in the third quarter and will have no material impact on earnings results until 2016, according to EMC.