VMware IPO

The hand writing was on the wall, and EMC finally did it.

EMC announced its intention to sell approximately 10% of VMware via an initial public offering (IPO) of newly issued VMware stock. EMC will retain ownership of the remaining shares of VMware, and has no intention of spinning out or otherwise divesting this ownership interest.  

As today’s eWeek article suggests, EMC shareholders [I’m not one of them] were looking for greater returns. EMC’s CEO explains more of the thinking with Fortune.

Here are some of my initial thoughts on this news:

• Diane Green and orginal VMware execs left money on the table, and this IPO will put ‘lost’ money in their pocket. VMware’s 2006 sales grew 83% to $709 million; EMC bought the it in 2003 for $635 million.
• VMware’s quarterly figures (and operations) will be more transparent for all. This should cause IDC to amend its elevated market projections. And the IPO comes at a time when VMware faces growing competition from open source technologies and Microsoft – raising interest in VMware’s 4th public quarter (first full year) results.
• Many believe VMware’s future revenue/success lies in management tools. With virtualization included as part of the major x86 operating systems and Itanium-based OSes, that will reduce the units/margins that VMware and distributors receive on ESX Server. In parallel, securing and managing VMs becomes the task at hand. In this situation, VMware’s management tools will compete with HP OpenView, IBM Tivoli, Microsoft Operations Manager, BMC Performance Manager and CA UniCenter.  All of whom offer and are building tools to manage both physical and virtual environments. So there’s three options: (1) VMware builds/buys its own tool with the excess equity from the IPO; (2) they license V-Motion to an established management vendor; (3) they open source all/parts of V-Motion, kinda like Sun did with Solaris.
• The IPO helps VMware fund the OS revolt and prove history wrong. Will everything be virtualized in 5 years? Doubt it – more likely 50%-75% of workloads. Still plenty of issues to resolve here.
• EMC’s culture was so much different than VMware’s culture, to the point that each had different badges. The IPO will help legitimize the wall between the two and likely help both companies’ employees.
• Storage virtualization. I had expected EMC’s acquisition of VMware to drive serious advances here. But it never materialized. Maybe the IPO will help change this.
• The sponsorship costs, and size of, VMworld 2007 are sure to increase. Let’s just hope there are more latte/coffee carts in San Francisco than there were in LA. And I’m sure our booth traffic will increase, too. The below photo is from Nov. 2006 show … attendees with our orange shirts that say “virtualize world peace”

What are your thoughts?

Patrick O’Rourke