VMware Names EMC’s Pat Gelsinger CEO to Replace Paul Maritz

EMC Corp. said Pat Gelsinger will succeed Paul Maritz as chief executive officer of VMware Inc., giving new management the task of pursuing new products and stepping up growth at the software maker under its control.

Maritz will return to EMC, which owns 79 percent of VMware, as chief strategist, Palo Alto, California-based VMware said yesterday in a statement. Gelsinger, chief operating officer for information infrastructure products at EMC, takes over Sept. 1.

The management change follows a growth slowdown that has dragged down shares 3.5 percent this year at VMware, the largest maker of so-called virtualization software, designed to make computers run more efficiently. It puts Gelsinger in charge of VMware’s push beyond servers into other areas of information technology, such as storage, security and networking, said Brian Marshall, an analyst at ISI Group.

“EMC is making management changes from a position of strength to address large new opportunities,” Marshall wrote in a research note. The areas of potential growth include “the entire IT infrastructure beyond VMware’s roots in server virtualization.”

VMware also said second-quarter sales rose 22 percent to about $1.12 billion, exceeding $1.11 billion, the average of analysts’ estimates compiled by Bloomberg. Excluding certain costs, operating margin was 32 percent, compared with VMware’s earlier forecast of 30.25 percent to 31.25 percent.

VMware rose 12 percent to $89.98 at the close in New York, the biggest daily gain since April 2011. EMC climbed 9.4 percent to $25.08, the largest one-day advance since October 2008. EMC has increased 16 percent this year.

Succession Planning

EMC’s CEO, Joe Tucci, who has committed to stay on until at least the end of 2013, is also trying to give key deputies new management experience. The changes, along with some alterations to the sales force announced last week “are the most visible steps yet in our long-standing executive succession plan,” Tucci said in an e-mail to employees obtained by Bloomberg. EMC confirmed the e-mail’s authenticity.

Tucci, on a conference call with analysts yesterday, left open the possibility that he may stay on beyond 2013.

“I’m will not overextend my welcome by any means, but as long as I’m enjoying it, providing value, they want me, the board wants me -- I’m very energized so I’m not putting any firm end date in the sand,” he said.

Gelsinger Gains

Tucci has been talking about moving on from the CEO position since at least 2009, when he said he would step down in three years and turn the job over to an internal candidate. He later said he would stay until at least the end of 2013, and he reiterated that point today. Tucci said he still expects to be replaced by an internal candidate.

EMC Chief Financial Officer David Goulden was also promoted to president and chief operating officer. He will retain the CFO role.

Gelsinger joined EMC in 2009 after about 30 years at Intel Corp. Hopkinton, Massachusetts-based EMC, the world’s biggest maker of storage computers, acquired control of VMware in 2004.

“It’s clearly a move up for Gelsinger, and moving Maritz to EMC as strategist means they weren’t unhappy with him,” said Mark Moerdler, an analyst at Sanford C. Bernstein & Co. in New York.

EMC’s Results

EMC said second-quarter sales rose to $5.31 billion, according to a preliminary review. Profit excluding some items was 39 cents, below the 40 cent estimate of analysts, according to data compiled by Bloomberg.

EMC’s board held discussions several months ago as to how best to expand VMware’s lead in virtualization software into areas like cloud and storage, and as part of those discussions Maritz said he decided it was time to hand the job to a new CEO. Maritz, who first met Gelsinger when both worked at Intel in the 1980s, suggested Gelsinger, Tucci said.

Maritz will focus on defining EMC’s strategy for products related to Internet-based cloud systems and handling massive amounts of data.

Maritz was the No. 3 executive at Microsoft Corp. and one of the architects of the company’s Windows operating system before he left in 2000. He was appointed CEO of VMware in 2008 after EMC acquired PI Corp., the company he founded in 2003, according to data compiled by Bloomberg.

On his watch, VMware’s revenue doubled to $3.77 billion last year from $1.88 billion in 2008.

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