RealTime IT News

Will VMWare IPO Boost Virtualization?

EMC has filed documents with the Securities and Exchange Commission to raise the offering prices for VMware's IPO and now expects the price to be as high as $29 per share, although it will likely trade a lot higher than that.

The initial target price was between $23 and $25, but EMC  upped that to between $27 and $29. With 38 million shares for sale on this IPO, which could happen as soon as Tuesday, that could net VMware $1 billion in cash and a market capitalization of $10 billion to $11 billion.

EMC purchased VMware for $600 million in 2004. At the time, VMware had revenue of less than $100 million and 300 employees. Today, the EMC subsidiary has grown to 3,000 employees and has seen sales grow 83 percent in 2006 to $709 million, thanks to exploding interest in virtualization.

EMC, the parent company of VMware, announced plans for the IPO in February. Since then, the stock market has been a rollercoaster ride of instability, up 150 points one day, down 200 the next.

"We are not surprised at the price increase given former price range grossly undervalued VMW by our estimates (and remains undervalued at new range)," according to a research note from asset management firm Robert W. Baird & Co.

Despite selling 38 million shares, EMC will retain 86 percent economic and 98 percent voting interest in VMware. Intel  and Cisco  have made recent buy-ins to VMware and are also poised to profit nicely from a well-received IPO.

The increase in price tells John Madden, research director for Ovum Summit, that VMware's promotion of virtualization is taking hold on Wall Street, as well as in datacenters.

"VMware has been around for a while talking about the virtues of virtualization, even when it wasn't cool or in the mainstream thought," he told internetnews.com. "They're reaping the benefits of that. I'm not sure if it will set the stage for other virtualization companies to go public, but it is an encouraging sign with the market see-sawing the way it has been, to say the least."

He noted that EMC has been very careful with how it has operated VMware, keeping it at arm's length and letting the software run on its competitors' hardware. But Microsoft's moves into virtualization could change that.

"As Microsoft rolls out virtualization offerings as part of the OS, it could force EMC's hand to marketing its ownership in VMware," said Madden.