An activist investor is pushing storage vendor EMC to spinoff subsidiary VMware, which provides cloud and virtualization software and services.

Hedge fund Elliot Management Corp. has taken a $1 billion stake in EMC, which amounts to 2 percent of the company's $55 billion equity value.

Elliot, which has become EMC's fifth largest shareholder, plans to push EMC to spinoff VMware in order to give its lagging stock a significant boost, The Wall Street Journal reported.

EMC owns about 80 percent of VMware, which is publicly traded. EMC did not respond to a request for comment.

EMC describes itself as a "federation" of three companies, EMC, VMware and Pivotal Labs, an application development consultancy that EMC acquired in 2012.

Compare EMC's cloud storage costs against public clouds such as Amazon S3 and Microsoft Azure for backup and disaster recovery.

VMware and Pivotal Labs are growing at rates much faster than EMC's storage and server business, which reported a less than 2 percent increase in sales in the first quarter, while net income fell about 30 percent year over year.

EMC has had to battle disruption in its traditional hardware business due to an increasing number of companies shifting storage from on-premise systems to cloud service providers, such as Amazon.

EMC activist investor pushes for VMware spin off

EMC has taken steps to embrace the cloud market trend. The company announced July 8 the acquisition of TwinStrata, a maker of software for managing storage in the data center and the cloud.

VMware's market value is $41 billion, or almost three-quarters of EMC's market capitalization.

Elliot is expected to argue that EMC's and VMware's business are each held back by the present arrangement, since they compete against each other in some areas, the Journal said.

However, EMC and VMware customers are more likely to suffer a "negative impact" from a break up, Greg Schulz, senior advisory analyst for StoageIO, said in an email to CruxialCIO.

"There could be benefits of being separate, however, an investor-led breakup would have as an objective better shareholder return, which might come at the expense of service, support, research and development, things that the federation can help each other with versus if left to being independent," Schulz said.

Companies that could bid on VMware if it was cut loose by EMC include Cisco Systems, Hewlett-Packard and Oracle, analysts have said.