VMwares IPO (Idiotic Public Offering)

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.


Check out eWEEK.coms for the latest news, views and analysis on servers, switches and networking protocols for the enterprise and small businesses.