New CEO, Strong Results Stress VMware Role in EMC Success

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Data storage equipment maker EMC Corp's move to replace the CEO of its software unit VMware Inc underlined the unit's rising importance in EMC's growth story, analysts said.

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Shares of both EMC (EMC) and VMware (VMW) rose in premarket trading.

EMC replaced Paul Maritz, the popular head of VMware with Pat Gelsinger, who is the president and chief operating officer of EMC's information infrastructure products division.

Maritz will move to the role of chief strategist at EMC.

"The announcement ... highlighted the growing strategic importance of VMware in the increasingly software-defined datacenter of the future," ThinkEquity LLC analysts said in a client note.

"We are encouraged that he (Maritz) is leaving the reins in the hands of another very strong technology executive ... who we believe has the potential to take VMware to greater heights."

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The brokerage cut its price target on EMC's stock by $2 to $30 on macro economic concerns, but maintained its "buy" rating.

Preliminary results at EMC -- helped by strong results at VMware -- also boosted investor sentiment, coming as it did after Intel Corp issued a gloomy revenue forecast.

EMC is benefiting from favorable spending trends for storage products, Morgan Stanley analyst Katy Huberty said. Cloud, analytics and virtualization remain top spending priorities despite the slowdown, she added.

She said the new executive changes were likely to integrate VMware and EMC products better, and open up the potential for new software-based, higher-margin revenue streams at EMC.

However, Citi Investment Research analyst Walter Pritchard said Maritz's departure as CEO brought operational risks.

J.P. Morgan Securities also remained cautious on weakening IT spending and its potential impact on VMware's business.

Shares of EMC, which closed at $22.92 on the New York Stock Exchange on Tuesday on, rose 6.4 percent to $24.39 in premarket trading.

VMware's stock were up 6.5 percent at $85.50 in trading before the bell. They closed at $80.29 on the New York Stock Exchange On Tuesday.

(Reporting by Shubham Singhal and Sayantani Ghosh in Bangalore; Editing by Don Sebastian)