Opinion: All the hype about VMware hasn't produced a good reason to invest in this stock.
OK, I dont own a single share of any technology stock. I cant work as a
technology journalist and invest in tech companies. Now, if you want to
know about the cocoa commodity future market, Im your man. That said, I
do know technology and I do know business and I know theres not one
good reason to invest in VMware.
Lets start with the business side.
VMware
plans to "sell" 33 million shares to the public. Of that amount,
EMC, which owns VMware, will "buy" 26.5 million shares and it will also control
a separate class of stock. Altogether, EMC will still control about 87
percent of the company.
So, with 13 percent of the stock potentially in the public hands, who
exactly will be controlling VMware? Why, its current owners, of course.
Before the market even opened, Intel bought $218.5 million in VMwares
common stock at $23 per share, which means that it will own 9.5 million
shares. Cisco gets 6 million shares of the common stock at $25 per share for a total investment of $150 million.
For those of you without a calculator at hand, that means unless youre
buddy-buddy with a bigwig at one of the companies involved, not one
of you is actually buying into an IPO (initial public offering).
Lets take a close look at
EMCs
financials too, shall we? In the last, disappointing quarter, it
turns out that EMCs core business, storage—Clariion and Legato on top
of Symmetrix storage arrays—declined from $703 million to $668 million, a
5 percent year over year decline. VMware brought in 296.8 million
smackers. I dont see any of that revenue leaving EMC for common stockholders
dividends any time this decade.
That presumes, of course, that VMware is going to continue to own the
virtualization market. Lets look at the technology side, shall we?
Yes, virtualization is hotter than hot. VMwares $296.8 million was up from
$156.4 million for the same time span in 2006. Thats great. Thats
wonderful. VMware dominates the virtualization market... for now.
Theres this little problem, though, you see. Open-source software
virtualization programs like
Xen, OpenVZ, KVM, VirtualBox and
UML (User Mode Linux) are coming on fast and strong.
When I look at VMware technology, I dont see a market leader. I see a technology thats about to be overwhelmed by the new open-source virtualization hypervisors. As I see it, VMwares
ESX Server is playing the role of SCO OpenServer and UnixWare to the open-source virtualization programs, who are starring in the Linux companies roles. And, we all know how well that turned out for the x86 Unixes, dont we?
Sound unlikely? Let me just remind you that those same companies—Red
Hat and Novell/SUSE—that knocked off the Unix competition are now
open-source virtualization softwares biggest supporters.
Honestly, Id be surprised if VMware survives for more than three to
five more years when you consider the open-source opposition building up
against it. And, as for investing in it? Well, I think that September
cocoa future prices will rise above two grand per metric ton on the New
York Board of Trade because I think there will be even fewer beans out
of the Ivory Coast than anyone expects.
Oh? VMware? Get serious. Even if I could invest in technology stocks, I
wouldnt put a dime in it.
eWEEK.com Senior Editor Steven J. Vaughan-Nichols has been using and writing about operating systems since the late 80s and thinks he may just have learned something about them along the way. He can be reached at sjvn@ziffdavis.com.
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