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Previously underperforming DELL and VMW stocks got massive boosts as Dell considers options for its $50 billion stake in VMware. Dell stock added over 18% after hours, while VMware shares gained nearly 9%.
The hallmark of companies’ growth is the acquisition of and /or a merger with other firms that can help expand their business reach. In the real business world, mergers and acquisition goals are driven by the company’s current financials as well as a need to advance their businesses with the product or service offering of the firm they intend to buy. The shares of Dell Technologies Inc (NYSE: DELL) are currently trading higher after the computer manufacturing company considers options for its $50 billion stake in software company VMware Inc (NYSE: VMW).
Both companies’ stock values have been trading low with Dell shares trading with a 5% low since the turn of 2020 and VMW trading at 2%. DELL gained 18.55% hours after trading opened on Tuesday complimenting the 1.49% gain at the close of trading on Monday. VMW is also boosted with an impressive 8.87% rise after hours yesterday.
Dell Company Structure
Dell Technologies is an American multinational technology company formed as a result of the September 2016 merger of Dell and EMC Corporation (which later became Dell EMC). The company is renowned for the manufacture of standard computers, servers, smartphones, televisions, computer software, computer security, and network security, as well as information security services.
Dell owns separate businesses including VMware (80%), RSA Security, Pivotal Software, Secureworks, Virtustream, and Dell Boomi. While the company derives about 50% of its revenue from the United States of America, its products are widely used all over the world. With DELL’s products and services in the field of scale-out architecture, converged infrastructure, and private cloud computing, the company is positioning itself as the technology company for the future.
Dilemma for Dell with VMware
VMware entered into a partnership with Amazon.com Inc (NASDAQ: AMZN) in 2016 boosting the company’s public cloud offering. As data from VMware’s recent earning report shows that Dell has about 81% of VMware outstanding common stocks as of May 1 culminating in combined voting power of 91%.
Dell Technologies which is co-owned by EMC and is the original owners of VMware which invariably became part of DELL with the $67 billion acquisition of the storage maker in 2016. Bob Venero, CEO of Holbrook, New York-based Future Tech Enterprise told CRN:
“When you look at VMware and its position in the market – as the de facto virtualization platform out there – it doesn’t surprise me that it kind of overshadows some of the other technological advances that Dell has put together, from acquisition and homegrown over the last decade or so. VMware just has such a crazy market share compared to everyone else out there.”
“If there was ever a time to sell, it’s probably now. VMware is up pretty well, and the market is in much better shape than it was not too long ago,” added he.
Although the DELL’s position is either to offload or to completely acquire the thriving virtualization platform but whatever position it takes, analysts believe the deal may not be finalized until the end of 2021.
Uncertainties at Play
It has been a tough year thus far for businesses that got deeply whipped by the coronavirus. The wake of the pandemic particularly took a toll on DELL and VMW stocks. Thanks for the new uptick, investors are keenly watching the situation. Coming from a stressed state, the two company’s stocks are best handled as being volatile as any unfavorable development could lead to a reverse performance. In all, with a well thought out process, the value of the companies may get more uptick when Dell’s decision is finally out in the open.