VMware reports preliminary Q3 sales of $1.67B, drops 10% following the announcement of Dell-EMC deal
VMware Reports Q3 Sales Of $1.67B, Stock Drops After Dell Offers $67B For EMC — Alongside the not-unexpected news that Dell would acquire EMC in a record $67.1 billion deal …
Context & Ripple Effects
Two days after Re/code reported Dell's $27.25-a-share cash-and-tracking-stock offer for EMC — structured partly around VMware itself — VMware pre-announced preliminary Q3 sales of $1.67B and its shares fell about 10%. The market is repricing VMware not on the quarter but on what it will look like inside a combined Dell-EMC.
The quarter itself was solid enough; the drop reflects the overhang of the $67.1B takeover, the largest in tech history at announcement, which folds VMware into a much larger hardware-and-storage parent.
First-order effects
- VMware shareholders absorb an immediate ~10% markdown as the tracking-stock component of Dell's bid prices their stake against deal terms rather than standalone fundamentals.
- EMC shareholders gain leveraged exposure to VMware through the tracking stock, making VMware's future results a direct input into the deal's realized value.
Second-order effects
- VMware's board moves defensively with capital returns — a $1.2B buyback program follows within two quarters — while management trims costs, confirming 800 layoffs and hiring Zane Rowe from EMC as CFO to align with the incoming owner.
- Rivals in virtualization and storage can pitch VMware customers on ownership uncertainty during integration, pressuring renewal cycles across the Dell-EMC installed base.
Third-order effects
- The tracking-stock wrapper proves temporary: VMware eventually separates from Dell via spin-off, reporting $3.14B quarterly revenue with SaaS up 23% by the time it stands alone in late 2021 — a full cycle from subsidiary back to independent company.
- The episode becomes a template for mega-acquisition risk pricing: public companies absorbed into record LBO-scale deals trade on deal structure first and earnings second until the structure unwinds.
The trend: Tech mega-deals that wrap independent public companies into leveraged parents tend to end in separation, with the subsidiary's subscription pivot funding its independence.