VMware Seeks To Build on IPO Buzz
Fresh off this year's hottest
debut on Wall Street
, trendsetting software maker VMware Inc. is hosting
nearly 11,000 people clamoring to learn more about a computing twist that is
turning into high-tech's next big jackpot.
VMware's three-day conference, which began Tuesday in San Francisco, provides
the once-obscure company with an opportunity to build on the buzz created by
its lucrative initial public offering of stock less than a month ago.
"This is their moment in the sun," said Erik Josowitz, vice president
of product strategy of Surgient Inc., one of many software makers hoping to
ride VMWare's coattails. "They have every reason to be having a very big
party right now."
VMware's software steers a process known as "virtualization," which
allows computers to harness more of their unused power and run more applications
at once without a hiccup. More than 20,000 companies already use VMware's software.
Investors are flocking to VMware too. The Palo Alto-based company's initial
public offering raised $1.1 billion, the most a high-tech company has pulled
in since Internet search leader Google Inc. went public three years ago.
VMware's stockholders have enjoyed the ride as shares have nearly tripled from
their initial price of $29. The stock hit a new high of $82.75 Tuesday before
finishing the regular trading session at $76.65.
With a market value approaching $30 billion, VMware already is worth more than
all but three publicly traded software makers -- Microsoft Corp., Oracle Corp.
and SAP AG.
In January 2004, VMware was valued at $602 million -- the price EMC Corp. paid
for it then. Hopkinton, Mass.-based EMC still holds an 87 percent stake in the
This week's conference, dubbed "VMworld," is another reminder of
the company's rapid ascent. VMware's first customer conference in 2004 drew
fewer than 1,500 people.
The central idea of VMware's visualization software is to turn a single computer
into the equivalent of multiple machines, enabling companies to save money on
the hardware and electricity needed to keep their data centers humming. Virtualization
also is supposed to make it easier to recover information after computers crash.
Those benefits are expected to spur one of corporate America's biggest spending
sprees on technology since the dot-com boom ended in 2000. Research firm IDC
estimates spending on virtualization software and supporting services will swell
to more than $15 billion worldwide in 2011, up from $6.5 billion last year.
Billions more will likely be spent on compatible equipment.
"Virtualization has reached a tipping point," Hector Ruiz, Advanced
Micro Devices Inc.'s chief executive officer, said during a speech at the conference
Forrester Research analyst Frank Gillett agreed. "We are about to see
a big shift in information technology. It's like the light bulbs are going off
in everyone's heads all at once."
Computer chip maker AMD is angling for a piece of the action, along with a
long list of technology bellwethers, including Intel Corp., Hewlett-Packard
Co., IBM Corp., Dell Inc. and Cisco Systems Inc.
None appears better positioned than VMware, which was founded in 1998 by a
group that included entrepreneur Diane Greene and her husband, Stanford University
associate professor Mendel Rosenblum. Greene remains VMware's chief executive
and Rosenblum serves as chief technical officer.
Analysts predict VMware will earn $235 million on revenue of $1.27 billion
this year, up from a profit of $86 million on revenue of $704 million last year.
The company's growth prompted both Intel and Cisco to buy small stakes in VMware
before the IPO.
"Diane Greene had a great vision. She has proven that virtualization is
bigger than anyone ever thought it could be," said Vinod Khosla, a prominent
Silicon Valley venture capitalist and co-founder of Sun Microsystems Inc. He
is investing in a startup, Xsigo, that specializes in virtualization hardware.
Greene, 52, told Tuesday's audience she sometimes finds it hard to believe
how quickly virtualization is gathering steam.
"A year ago, we were talking about virtualization becoming mainstream,"
she said. "Now, we are talking about a virtualization industry."
VMware's future looks so bright that some analysts believe the company someday
could become as essential to the computing world as Microsoft is.
That's because virtualization relies on a "hypervisor" that resides
below operating systems, such as Microsoft Windows and Linux, and makes key
decisions on how computers run. VMware kicked off this week's conference by
announcing deals to embed its latest hypervisor on the servers commonly deployed
in data centers.
Leery of VMware's success, Microsoft plans to enter the virtualization market
next year with its own software, currently
Other rivals like Ft. Lauderdale, Fla.-based Citrix Systems Inc. could slow
VMware's growth. Citrix signaled its intention to become a bigger player in
the field last month with a $500 million deal to buy virtualization specialist
But VMware has a huge head start with 17 virtualization products already on
the market and 22 patents that won't start expiring until 2018.
What's more, VMware's high-flying stock gives it the financial clout to expand
through acquisitions. Toward that end, VMware disclosed Tuesday that it has
bought another virtualization software specialist, Switzerland-based Dunes Technologies,
for an undisclosed sum.
VMware "is leaps and bounds ahead of everyone else, but I think we are
a long way from game over," Josowitz said. "This thing is just getting