VMware takes an executive talent hit but can handle it

The news that Pat Gelsinger is departing as CEO of VMware to take over at Intel generated a positive response for Intel and an equally negative response for VMware. Intel’s stock jumped 7% on the day of the news, while VMware’s stock fell 7%, and investment bank Piper Sandler slashed its VMware price target from $178 down to $157.

Most of the discussion has been around Gelsinger and his return to Intel. VMware, meanwhile, has been overlooked in the process. So what’s the outlook for VMware, which has lost more talent than just its CEO in recent months? 

Gelsinger’s departure is coming at a tumultuous time for the company. In December, COO Rajiv Ramaswami departed to take the CEO position at Nutanix, VMware’s chief rival in the hyperconverged infrastructure (HCI) market. That resulted in a lawsuit from VMware for breach of contract.

Then just weeks ago, Ajay Singh, senior vice president and general manager of VMware’s Cloud Management business unit, departed the company to become chief product officer for Pure Storage. No lawsuit as yet.

Executive churn isn’t normally cause for concern unless it’s a major one (like Steve Jobs’ death) or if it’s a pattern. Gelsinger, Ramaswami, and Singh are three heavy hitters in a row, all departing within a month. So is it really all that bad for VMware?

Not really, say the analysts.

“I think it’s natural that if many senior execs are going to make a move, around the time of a new year is a good time to do it,” says Stephen Elliot, program vice president for infrastructure and cloud operations at IDC.

“VMware’s management bench is pretty deep, not just the executive team but two or three layers below that. Pat developed that bench, and they are ready across multiple tiers. It’s an extremely well run company and certainly has many internal candidates,” Elliot adds.

“Executive departures are par for the course in the Silicon Valley, so I don’t think much of that. Pat leaving is a blow, but it depends on who they get to fill that position,” says Glenn O’Donnell, vice president and research director with Forrester Research.

Gelsinger doesn’t leave for a month and will remain on the VMware board, a clear sign that this is not an acrimonious split. For now, CFO Zane Rowe will take over as acting CEO if one isn’t selected before February 15, which is Gelsinger’s last day.

Both Elliot and O’Donnell (and a whole lot of other analysts) are very high on VMware COO Sanjay Poonen getting the CEO nod.

“I think if there was an internal person who could fit the bill, I think [Poonen] is a perfect fit,” Elliot says.

“Pat was really good for VMware. I think he’s got a good bench under him, most notable is Sanjay. And I think he’s a strong contender to take over if they go internal,” says O’Donnell, who adds that he thinks VMware might go for someone from the outside.

In which case, expect an announcement of Sanjay Poonen’s departure from VMware within a few weeks.

Elliot also lauded Gelsinger’s actions in building up a deep talent bench. “Pat did a great job of developing multiple tiers of talent that were ready to fill in if needed. That’s VMware’s culture. No one at VMware coasts on the coattails of others. That helped them get where they are,” he says.

And where do you think he learned that? Intel was notorious as a sink-or-swim place during the time Gelsinger was there; no one was just punching a time card. 

Gelsinger was talked about as a future CEO of Intel a decade ago before his abrupt departure, and he made no secret of his wish to run the place (including to me). But the analysts believe that his almost 12 years outside of Intel made him better suited to take the helm.

“He is probably so much better prepared now than if he stayed at Intel,” Elliot says. “He has the right operating chops because of his experience at VMware.”

“He was good for VMware, but VMware was good for him, too,” O’Donnell says. “He stepped out of Intel and learned a lot about the business he didn’t know about. So that made him that much stronger to come back and take the helm at Intel.”

The big question now is does this increase the chance of a spinoff from Dell, planned for this September, or reduce it? Neither analyst is sure how that might play out, especially without knowing who the new CEO will be.