A sideways look at the enterprise fall out from the musical chairs played by defecting VMware execs

Martin Banks Profile picture for user mbanks January 15, 2021
First VMware’s COO resigned to take up the role of CEO at Nutanix, rapidly followed by a lawsuit for breach of contract and fiduciary duty; then the CEO left to join Intel as its new boss. The bigger questions in both cases are the same – what might be the eventual result?

moving on

Recent weeks have seen two ‘people’ stories emerge from VMware, both highlighting subtle, but deeply significant changes that are occuring across the IT vendor community right now. Story one concerns  VMware’s Chief Operating Officer Rajiv Ramaswami, who has gone off to join Nutanix as CEO, replacing the retiring Dheeraj Pandey. Story two concerns VMware's CEO Pat Gelsinger, who is off to be the CEO of Intel. 

A large part of both stories stems from the company's reactions to these two events. VMware has started legal action against Ramaswami in California's Superior Court in the County of Santa Clara citing material and ongoing breaches of his legal and contractual duties and obligations to VMware. The company’s statement says:

Rajiv Ramaswami failed to honor his fiduciary and contractual obligations to VMware. For at least two months before resigning from the company, at the same time he was working with senior leadership to shape VMware’s key strategic vision and direction, Mr. Ramaswami also was secretly meeting with at least the CEO, CFO, and apparently the entire Board of Directors of Nutanix, Inc. to become Nutanix’s Chief Executive Officer. He joined Nutanix as its CEO only two days after leaving VMware.

In contrast, it looks like Gelsinger will continue to be a member of the Board at VMware after he departs next month. The only difference would seem to revolve around the degree to which VMware considers Nutanix to be a director competitor rather than a complement. Intel and VMware are certainly complementary, though the latter obviously has the opportunity to affront the former by ‘sleeping with the (growing range of) enemies' at every conceivably (and sensible) opportunity.

Ramaswami and Nutanix

Taking Ramaswami and Nutanix first, let me say at the beginning that much. of what follows is inevitably speculation on my part. VMware appears concerned that details of its meetings would inevitably color plans and decisions Ramaswami might now take as Nutanix CEO, giving the company a possible advantage in the marketplace. As papers have yet to be filed with the Court, it is impossible to know for certain what VMware is specifically alleging or what type or level of restitution it might seek. And as the Court Service in Santa Clara area is currently under COVID-19 driven restrictions till February 1 at the earliest, such details may not be forthcoming for some time.

However, the fact that the case will be heard in a California court matters. One of the key issues is likely to be that California law specifically defends the right of individuals to undertake discussions and interviews for new jobs, even if they are with competitors where issues of some commercial confidentially might be assumed to arise.  The State does not allow for so-called non-competition agreements or covenants which prevent people from joining competitors. 

California even has a law to prevent a litigant bringing such a case in a different State of the Union where such a covenant does apply, even if the contract of employment states that the laws of that other State apply. One therefore has to assume that, should VMware have viewed the Gelsinger move in the same light, he would be protected by the same laws. At the time of writing there is no indication that such a move is likely to be made in practice.

The key appeal for Ramaswami with Nutanix may well be what Pandey talked about at his departure press conference, where he clearly saw the need for change in order to meet the needs of users, especially the hundreds of thousands of smaller businesses for which the vastly increased complexities underpinning cloud services are now creating a real problem. 

Ramaswami was a key player in transitioning VMware to cope with the subscription/annuity business model, which is a key development for both companies and the channel community. The latter, in particular needs, to understand how that business model operates if they are to exploit the potential that is facing them, particularly as Nutanix moves to being an exclusively a cloud delivered operator. 

The company has shown it has some good people on hand when it comes to technology, but with the channel becoming ever-more crucial to generating a broad base of sales in the different world of subscription/annuity revenue generation, having a CEO with a track record in that side of the business is an obvious advantage. In addition, being a CEO of a smaller business, but one in a good place in the market and with good prospects is an obvious attraction.

It is not unreasonable to consider Ramaswami's prospects of becoming CEO at VMware - even though the position has, ironically, just become vacant - to have been on the slender side. Gelsinger will be a hard act to follow whoever gets the job. By comparison, it is not unreasonable to see that Pandey retired at time his personal skillset was starting to be tested and that new skills are now required. (I personally feel this is not the last we hear of Pandeym, but that’s for another time…)

Gelsinger and Intel

And what of Gelsinger and Intel, apart from the obvious observation that he is returning home as a (battle-hardened and track-record-proven) ‘prodigal son'?

He is leaving VMware after moving it significantly on from a company that looked as though it had let its view of the future dissipate. It has a large and committed legacy market and from the outside has looked like it might be happy ride on the back that as its alotted future. But that legacy was changing and Gelsinger heaved, hauled and cajoled it into facing the changes, working with them and taking advantage of them. It has played a significant part in dragging that legacy marketplace into the 21st Century and yes, Nutanix has also profited from that wider contribution VMware has made, though I suspect often more as a complementary force than a competitor.

Gelsinger is going to Intel as it drops into a really quite bad time, certainly compared to its long time position of naturally assumed dominance as the gorilla in the sector - ‘Chipzilla’, as its nickname goes. But a few years ago now it lost its technology mojo and fell behind its major competitors, particularly AMD. In addition, it stuck to core product family, the x86 architected general purpose processor range, for which there was still a big market at the heart of every PC and server hardware.  

But not only was it suffering against competition in its own back yard of general purpose processors because of its continued, and apparently irresolvable, technology weaknesses, the whole raison d’etre behind such homogenous, general purpose processors has started to disappear.  Artificial Intelligence tech, likely to be the lifeblood of both future business processes and consumer-facing entertainment and service provision apps, runs poorly on such processors and they have proved all but irrelevant to the continuing development of smartphones and other personal client devices.

The homogenous one-device-type-does-it-all approach of Intel is no longer in vogue. Instead, the need now is to climb up through the levels of abstraction away from the notion of the chip and head towards heterogeneous packages of implemented service provision, in effect pulling together and integrating the most appropriate devices required to fulfil a specific (if reasonably broad) service requirement and package it up. (Some older readers will remember PCMCIA cards - think of them and multiply by N!)

This is a market that Intel has already started to tap into. Indeed, over two years ago it was starting to produce amalgams of processors, Optane Persistent Memory and Deep Learning Boost software as a single package.

This could be why Intel has targeted Gelsinger. He combines a rare collection of backgrounds. He spent some 30 years at Intel, including a goodly period as Chief Technology Officer, so while he may not be fully up-to-speed on the internals of the firm, he understands this stuff. But eight or so years as VMware CEO means that he can add a real end user perspective on what functionality is actually required and why. That puts him in a good position to deliver on the stance Intel put forward as a prime objective back in 2018: the recognition that the issue is about asking users the question ‘What do you want?’ rather than telling them to ‘Look what I’ve got!’. That could give Intel a significant advantage against the vendors that are simply outsmarting it on technology alone.

My take

Two interesting rounds of tech sector ‘musical chairs’, each of which could have important long-term impact on the industry. These are developments to keep an eye on in 2021 as they respond to and, more importantly, influence the shape of enterprise end-user computing. 

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