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Technology Stocks : VMware, Inc. (VMW) -- Ignore unavailable to you. Want to Upgrade?

To: Glenn Petersen who wrote (1)	8/2/2007 12:57:05 PM
From: Glenn Petersen	Read Replies (1) \| Respond to of 358

From the Wall Street Journal, July 7, 2007: <snip> VMware's Market Debut The tech sector's hope for a revival in corporate information-technology investment hasn't panned out for several years. This one is shaping up to be no better, despite the launch of Microsoft's new operating system, Vista. Most analysts estimate that IT capital expenditures will grow only about 5% this year. Yet one of this summer's most anticipated initial public offerings is for VMware, a tech company being sold by information-storage specialist EMC. What gives? VMware is actually a play on shrinking tech budgets. VMware sells software that enables several applications and operating systems to run simultaneously on a single server. Companies employing the technology, called virtualization, often can get rid of about 80% of their servers -- for huge savings both in hardware and electricity. This means VMware will be largely immune to IT-investment cutbacks -- or it could even benefit from them. VMware's sales have doubled in recent years. It may bring in revenue of $1.2 billion this year. The potential market is huge -- only about 5% of servers currently sold use the technology. Analysts say the company could be valued at $10 billion when it goes public. At eight times estimated 2007 sales and 25 times operating profit, that looks rich. But it is in line with other fast-growing software companies. Moreover, EMC, which bought VMware for $635 million in 2004, is selling only 10% of the company. There is likely to be plenty of demand for the sliver of stock. But VMware's long-term position could be tenuous. Microsoft, among others, wants to dominate virtualization technology. While it is hard to say who will succeed, picking the losers looks simple. This software allows companies to get by with fewer servers. It could hurt big hardware producers like Dell, International Business Machines or Sun Microsystems. --Lauren Silva and Robert Cyran This column is written by breakingviews.com, an online financial commentary site. online.wsj.com