The long-planned, on-again, off-again Dell Technologies-VMware spinoff is on schedule to happen by the end of November. And to hear executives from both companies describe the deal, it’s akin to finding a pot of gold while riding a unicorn across a rainbow: Everyone wins from the Dell-VMware spin.

Of course, that’s probably an overstatement, so SDxCentral called in some heavy hitters to dissect the winners and losers in the deal under which Dell Technologies will spin off its 81% stake in VMware.

“Well, I think the big winner is Michael [Dell],” said Zeus Kerravala, principal analyst at ZK Research. “He will still own a huge chunk of VMware. It’s not like he needs more money, but he stands to make a boatload of money.”

Indeed, Michael Dell may be the biggest winner in all of this. He ranks No. 30 on Forbes richest billionaire’s list, and post spinoff he will own about 41% of VMware. Dell will also remain chairman of both Dell Technologies and VMware.

There are others on the winners’ list, including VMware and Dell Technologies’ partners, would-be partners, and even competitors. But first, here’s a look at the deal itself.

Dell-VMware Spinoff Agreement

In July 2020, Dell Technologies admitted it was exploring a VMware spinoff — its second such what-to-do-with-VMware discussion in two years. But it wasn’t until earlier this spring the companies announced they'd reached a deal to create two separate companies but preserve Dell and VMware’s “strategic partnership,” VMware CFO Zane Rowe said at the time.

Under the terms of the agreement, VMware will pay a cash dividend between $11.5 billion and $12 billion to all VMware shareholders ranging from $27.43 to $28.62 per share, based on outstanding shares as of March 16. Dell Technologies will also receive a dividend of between $9.3 billion and $9.7 billion that the company will use to pay down its debt.

Additionally, Dell Technologies’ stockholders will receive a pro-rata distribution of VMware shares held by Dell Technologies, and Michael Dell and Silver Lake Partners will own direct interests in VMware.

And finally, the two companies agreed to a five-year commercial agreement they say “preserves and enhances their strategic partnership to deliver joint customer value.” Specifically, they will continue to collaborate on several products: their market-leading hyperconverged infrastructure VxRail, VMware Cloud on Dell EMC, and VeloCloud SD-WAN along with other areas including security, telco, and edge computing.

Dell Keeps VMware Access for 5 Years

This commercial agreement “allows Dell to have continued access to VMware technology,” Gartner Research VP Sid Nag said. “So VMware, although it’s going to be an independent company, will still be beholden to provide technology to Dell first.”

It’s a smart deal for Dell Technologies. VMware continues to be a money maker for the parent company, and its software plays a crucial role in Dell’s cloud strategy.

“It’s arguable that [VMware] is the only innovative thing that Dell has going on,” Kerravala said. “If you take VMware out of Dell, what’s left is essentially legacy business units.”

So keeping its tight grip on VMware’s technology will matter to Dell Technologies post spin as it continues along its own stated journey to offer all of its products as cloud-delivered services.

“Dell will be fine initially post spin, and by initially I would say two to three years,” said Matt Eastwood, SVP of enterprise infrastructure, cloud, developers, and partnering at IDC. “I say this because the technology sharing agreement between Dell and VMware can only really help with what both companies can see now when looking out toward the future.”

However, as the market continues to evolve the agreement will have less value — and less benefits for Dell, he added.

“Dell can, of course, negotiate new agreements and extensions, but so too can the rest of the marketplace,” Eastwood said. “I think Dell will need to build out (or acquire via tuck-ins) more of their differentiable IP over time. So net-net, Dell is fine for the next 12 to 24 months. But longer term, it will be up to them to build, buy, or partner for what is coming around the corner that they can’t currently see.”

HPE ‘Has the Most to Gain’

Ever since taking the role of VMware CEO in May, Raghu Raghuram has highlighted the spinoff’s benefits to other infrastructure vendors beyond Dell Technologies. “We are very excited by the spin,” he said at a recent technology conference, adding that it will allow VMware to achieve its goal to be the “Switzerland of multi-cloud.”

“It will allow partners that previously were competitors of Dell to now look at VMware in a new light and say, ‘hey, we can do strategic things with VMware,’” Raghuram said.

But it also maintains VMware’s cozy relationship with Dell Technologies via the commercial agreement “that allows for continued and deepened technology and business collaboration,” he added. “Post-spin, we’ll be in a best-of-both worlds situation.”

This certainly does seem true for VMware. And the move will also benefit VMware’s other partners, Eastwood said.

“VMware will be in a position to play the ecosystem partnership game more completely following the spin,” he said. “This could benefit HPE, Lenovo, Cisco, NetApp, and Pure Storage. The company with the most to gain is HPE as they have the scale to help VMware particularly with dedicated local cloud and at the edge. That said, HPE increasingly has their own software strategy with Ezmeral and GreenLake.

What About Nutanix, Microsoft?

Both Nag and Kerravala said there’s an opportunity for future HCI partnerships similar to what VMware and Dell did with VxRail.

“One of the reasons why Dell managed to jump ahead in the hyperconverged infrastructure space is because they were able to keep their products in lockstep with VMware,” Kerravala said. “And that gave them really a first mover advantage. The ownership of VMware by Dell gave Dell infrastructure a pretty significant advantage because the number one workload running on hyperconverged platforms is VMware.”

Dell and VMware jointly developed the HCI products, which run VMware’s software stack on Dell EMC hardware, and Dell also syncs the release of new VxRail products with VMware software updates.

“So now VMware can take that technology and software and do similar things with the HPEs and the Ciscos and the Lenovos,” Nag said. “On the converse side: Dell will have an opportunity to work with other software providers.”

Dell Technologies already sells systems that run Nutanix and Microsoft’s hyperconverged software stack. The spinoff could spur sales of Dell hardware coupled with those vendors’ software and also encourage more integrations across Dell’s portfolio.

“I’ve been greatly disappointed to see Microsoft’s inability to take any kind of share from VMware on the hypervisor side, but this could give them the opportunity to do and open the door for them to be a little more aggressive,” Kerravala said.

Nag said he expects Dell to more tightly integrate Nutanix’s software across its products. “Especially in the new world of as-a-service and the announcement of Apex,” he added. “Another element is that Dell has an investment arm, they invest in a lot of startup companies, and in my estimation you’re going to see many of these startup companies’ technology being rolled into Dell products.”

All Roads Lead to Edge

Perhaps the biggest opportunity that spans hardware, software, and cloud is the edge. “And VMware has the technology stack to help shape the competitive landscape,” Eastwood said.

In addition to its close partnerships with Amazon, Microsoft, Google, IBM, and really all of the major cloud service providers, VMware also has strong ties to telcos that have influence and prime real estate at the edge, Eastwood added. “And these telcos are also being targeted by all of the technology OEMs such as Dell, HPE, Lenovo, Cisco, etc.” he said. “It is this battle for the edge that will define the next phase of cloud, and the OEMs all clearly don’t want to miss out on the opportunity here.”

VMware shouldn’t miss this opportunity either, Nag said. It could position NSX, its virtual networking technology, as the fabric to connect multiple public and edge clouds, he explained.

“As the world becomes more distributed, the need to connect all these islands through a software fabric is going to be more necessary,” Nag said. “So how does VMware leverage NSX? They’ve pretty much kept NSX as sort of a VMware-centric connectivity model. Can they really extend that to other areas across distributed clouds using the fundamental technology?