Updated: CEO Diane Green says VMware's IPO will help fund its R&D and allow it to build on its array of virtualization technology.
Its the dawn of a new day for VMware and the companys co-founder and president, Diane Greene.
At the clang of the opening bell at the New York Stock Exchange Aug. 14,
some 33 million shares of the virtualization giants stock began getting traded on Wall Street. In the weeks leading up to the IPO (initial public offering), analysts and industry watchers speculated that VMwares IPO could end up being one of the most significant developments in the IT industry in the past several years.
By midday Aug. 14, investors were responding and VMwares stock, which had been initially priced at $29 per share, was selling for more than $50 per share in a market that has been rocked by financial troubles for more than a week. By the end of the trading day, the stock price stood at $51 per share. The initial sale of 33 million shares is expected to raise more than $900 million in capital and VMwares estimated worth now stands at more than $10 billion.
Greene, who has overseen the IPO as president and CEO of VMware, based in Palo Alto, Calif., said she believes this latest development in VMwares rise from obscure startup to mainstream player represents a huge step forward for the company. It also means a more significant and public role for her, both within the IT industry and the financial community.
"Its definitely a significant milestone," Greene told eWEEK a few hours after the companys stock went public. "And we think its a wonderful awareness-raising event for us. We pride ourselves on our software. Our customers love it so much, but letting customers know about it is one of our biggest challenges, so Im very excited about what today might have facilitated here. Its also a day for the people at VMware who have built the company."
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VMware, which Greene and her husband helped found in 1998, has cornered the market on x86 virtualization with its hypervisor technology. As the technology began to catch on with IT administrators and CIOs, the company grew and additional vendors began coming into the market, which helped bring the technology into the mainstream.
Being first gave Greene and her company a significant head start in the virtualization market. When EMC, which bought VMware in 2004 for more than $600 million, decided to sell off about 10 percent of the company earlier in 2007, it meant that VMware would have much more capital to invest in development, research and other projects.
"We have very consistently explained to everyone that we will continue to invest quite heavily in [R&D] because we do have such a rich road map," Greene said. "We will continue to invest in the support that we give our partners as we co-develop our solutions and bring these solutions to the market. We also will continue to increase the reach of our products and this will help facilitate our ability to generate really strong new products that will further unlock all the value in the virtualization platform."
In July, EMC reported its second-quarter revenues, giving VMwares revenue for the period that ended June 30 as $296.8 million, compared with $156.4 million during the same time period in 2006.
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Tom Bittman, a vice president and chief of research at Gartner, said VMware would be wise to invest some of the money gained through the IPO in a new consulting force in addition to looking for some key acquisitions to help bolster its business.
While the IPO has been a boon for VMware, the company is facing increasingly stiff competition from other vendors, such as XenSource and Virtual Iron Software, that have been using the open-source Xen hypervisor and positioning themselves as low-cost alternatives.
While those companies do represent some competition for VMware, Bittman said he believes that the biggest challenge will come from Microsoft Windows Server 2008 and its own "Viridian" hypervisor,
which could debut as a beta by years end.
"Basically, for the last five to six years, VMware has had no competition," Bittman said. "The first real competition came when you had vendors developing Xen, open-source products, and then you are going to have Microsofts Viridian in beta later this year. I think Microsofts product is going to be a serious competitor to VMware and Microsoft has also really improved its management technology."
VMwares IPO could also change the marketplace by leading large OEMs, such as Hewlett-Packard and IBM, to invest more in their own or other companies virtualization technology. An Aug. 9 research note from analysts at Credit Suisse Group looked at the possibility of Citrix Systems buying XenSource or Virtual Iron to acquire hypervisor technology.
After the IPO, Greene said VMwares next step is to continue to invest in and refine its own virtualization technology. That means investing not only in products for the data center, such as the Virtual Infrastructure suite, but also desktop virtualization products and its management offerings.
VMware is also looking to maximize its products for high availability, disaster recovery and energy savings in the data center.
We are always going to be moving the base virtualization platform forward because there is still a lot to do," Greene said. "We are partnering with the hardware and processor vendors around that, as well as some peripheral vendors. We also have the VMware [Virtual] Infrastructure and we are building into that functionality that makes the software run and makes sure it is always available and always responsive. There is still a lot to be done there to fill that out and strengthen how we make things highly available, disaster recovery-tolerant and secure."
Greene added that the company is also committed to keeping itself open to other vendors and applications. One of the criticisms launched at the company, especially after XenSource began offering its latest XenEnterprise platform earlier the week of Aug. 13,
is that VMware forces its proprietary technology on customers.
"Two years ago we launched a community source program and we have over 30 partners, both large and small, that have full access to our source code to put functionality and to put black box functionality in," Greene said. "We have taken our API format for protocols and put them out for third parties to use, so Im really not sure that the facts are getting out there along those lines. I think VMware has been really progressive about how we work with the industry and I think we have been extremely good for our partners and the broader array of vendors."
As for VMwares relationship with EMC, Greene said the relationship will stay the same, although she will no longer serve as an executive vice president with the parent company.
"Right now, Im so looking forward to getting back and running the company," Greene said.
Editors Note: This story was updated to include the share value at the end of the trading day.
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