In what EMC is calling an IPO, the company says that this summer it will put up for sale around 10% of VMware’s worth as stock, and stressed that the remaining 90% of VMware will continue to be owned by EMC.

For the long term, we plan to hold on to this precious asset, said EMC CEO Joe Tucci.

EMC bought privately-held VMware January 2004 for $635m in cash. Since then, sales VMware’s x86 virtualization software have shown consistent breakneck growth. For 2006, VMware revenue totaled $709m, up 83% year-on-year.

Given the pattern of recent IT sector purchases, the investment market is likely to value VMware at seven or eight times projected 2007 revenue, or possibly more.

EMC said that some of the cash raised by the sale will find its way back into EMC shareholders’ pockets, either by way of a share dividend – which Tucci said was his preference – or through an EMC stock repurchase scheme.

At one stage during EMC’s announcement conference call yesterday, Tucci described the return of this cash to investors as the second priority, after the raising of capital to finance VMware’s continued growth. The next concern is to get the money back to the shareholders, he said.

But neither of those were given as the official reasons for the stock sale. EMC’s press announcement of the stock sale listed three motives – to improve visibility into VMware’s performance, to allow the subsidiary to offer stock options to staff, and to reinforce commitment to VMware open platform strategy.

By putting 10% of VMware out for sale, EMC will make Wall Street put a price on VMware, which is one way of improving visibility into VMware’s performance. That can only help raise EMC’s market capitalization, as EMC will still be holding the other 90% of VMware.

It is not at all obvious how the release of just 10% of VMware into public hands will reinforce EMC’s existing promise not to use its ownership of VMware to undermine server makers such as IBM Corp or Hewlett-Packard Co.

The ability to offer options in VMware stock will be useful when recruiting or retaining staff. Although EMC is already able to offer VMware staff options on EMC stock, right now those options are not hugely attractive.

Last year saw very healthy growth in the stock price of companies such as Cisco Systems Inc, Hewlett-Packard Co, and IBM Corp. But not for EMC. Its share price is at about the same value it was at twelve months ago. In fact during 2006 EMC’s share price dipped by around a third because of two quarters of missed targets, and because of the $2bn purchase of RSA Security Software Inc, which was unpopular on Wall Street.

Tucci is under pressure, for sure. Wall Street has been saying release the value, release the value for some while, said one investment banker who did not want to be named.

There’s nothing wrong with this. It’s probably the right thing to do. EMC is not growing at a robust rate. But if one area of the business is, then it makes sense to spin it out. It’s not rocket science, the source said.

During yesterday’s conference call, EMC was asked by a financial analyst whether it planned to spin out any more of its business. The answer was a categorical no, on the grounds that VMware was a special case. Our other assets are core to our infrastructure strategy, Tucci said. There are absolutely no plans to do any other spin-offs or any other things like this.