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Intel Gives VMware A $218M Boost

Intel has announced a significant investment in virtualization leader VMware. Intel Capital, the investment arm of the chip giant, announced on Monday it will invest $218.5 million, which will give it 2.5 percent of VMware's Class A common stock.

The deal also gives Intel  a seat on the VMware board of director. Intel has not yet said who the executive will be.

This is not Intel's first investment in a virtualization company. In 2005, Intel invested in SWsoft, the second largest virtualization developer behind VMware, for an undisclosed amount.

The VMware investment had to be disclosed because VMware is in the process of going public. VMware is a subsidiary of storage giant EMC, and the IPO will only put 10 percent of VMware on the market.

VMware and Intel spokesmen declined to discuss what Intel will get for its $218 million, but in a statement, the two companies said the investment is intended to "foster strengthened inter-company collaboration towards accelerating VMware virtualization product adoption on Intel architecture and reinforcing the value of virtualization technology for customers."

Because the IPO is imminent, VMware declined to comment on the investment, citing the quiet period before the IPO as per SEC rules. Intel spokesman Tom Beermann said the investment is part of Intel's "long-standing interest" in promoting virtualization technology.

"It's one of the fastest-growing sections in the tech sector and an important part of our business," Beermann told internetnews.com. "We had this opportunity to make this investment and the time was right. We think it's going to be a good investment, it could be a very good financial return."

That's what Jim McGregor, senior analyst with In-Stat, thinks Intel is looking for. "If VMware is as successful as Intel and everyone hopes going forward, then it gives Intel a return on investment on all they've spent on virtualization," he said.

As an EMC subsidiary, VMware doesn't need Intel's money, but it does reflect a commitment to the concept of virtualization, he continued. "It's kind of putting your money where your mouth is. It show us you have a stake in the game," said McGregor.

VMware has said it expects to go public "this summer," which should mean either this month or sometime in August.