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Will VMware be the next Google?

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These days “Virtualization” and virtualization software maker VMware are hot in both IT world and the Wallstreet. Jim Cramer pumped it as next Google on his “Mad Money” show on CNBC; guys at “Fast Money” (also CNBC) touted it as the next big thing. Both of them encouraging people buy the EMC (parent co. of VMware) stocks. My take is: whenever someone touted something as the next big thing, be very careful.

So what is virtulization exactly? In simple English, it let a computer to simulate many computers for testing new software, configuration, before formal deployment. This will cut the cost of buying all the servers, setting up a big testing lab etc. I read about the software from a book talking about “how to set up software small business”. This is relevant to small business because their budget is more tight compared to big IT giants like IBM.

The talking point in VMware’s S1 prospectus is currently there is less than 10% of servers in the world have installed this software. I remember Home Inns said something similar: in China top 10 hotels brands have 6% of the market share; in the US, top 10 chains have 60% of the market share. We all know the wallstreet is addicted to the growth.

The problem is, EMC stock has already got a nice run (up $4.84) in the past 6 months. Also even if VMware got the top price for IPO, the benefit to EMC is limited because the difference of size. VMware will have 375 m shares, EMC has 2.1 b shares, if VMware priced at $30, that’s means each EMC share will get $30 * 375 / 2100 = $5.36. Keep in mind EMC can not sell the VMware stocks right away.

For the record, some “boom and bust” sillicon valley tech IPOs include Rackable Systems (RACK), a blade system maker, and DivX , the video software maker. On the other hand, Riverbed (RVBD) is one of the strongest. I talked to a friend who works on Networking, his was very impressed with Riverbed’s products.

7 replies on “Will VMware be the next Google?”

“In simple English, it let a computer to simulate many computers for at testing new software, configuration, before formal deployment. This will cut the cost of buying all the servers, setting up a big testing lab etc. I read about the software from a book talking about “how to set up software small business”. This is relevant to small business because their budget is more tight compared to big IT giants like IBM.”

Dude you need to read more on this subject. Some of the largest banks, energy, and insurance companies are using VMware for more than systems testing. In the last 4 weeks I have visited at least two large banks and a large energy company that are using VMware for production applications. Also, by the way that “small business” you are talking about is not that small. A few years ago VMware put out a free player version called VMware Player so that anyone could run a VMware image. This has revolutionized training, marketing, and provisioning. In fact I would say it was analogous to what Adobe did for PDF. Also, if you research what Gartner says about power consumption in IT you will see that virtualization is a no brainier. You can see more of what I have to say on my blog site:

johnmwillis.com
John

John,
You seems like a geek. I’m a software developer too but I’m not
very familar with the Virtualization and its applications.

However, I do have sigificant experience on IPOs, stocks, etc. I think
this “virtualization” thing could have potential, but I don’t know how big
it will be. The more important thing is, if something is hyped as “next
Google” or something, it usually won’t work out that way.

Good luck to you…

It’s not going to be the next google, but you’re underestimating what it will be. 90% of potential processing power is unused in most corporate intel datacenters. They have to keep all their applications separate, because unlike the unix and mainframe world, intel machines running windows are much less stable with multiple workloads.

VMWare allows corporate customers to consolidate these low performance applications from many machines to one. I’ve seen 15-1 ratios before.

Basil,
I think your explaination is good. I also think the
“saving of power consumption” could be substantial.

So, do you think the virtualization technology today
has not made x86 server as stable as the unix and
mainframe? I am not hardware expert, is the architecture
of x86 processor partly to blame?

Ouch a geek 🙂

Basically the Gartner reports state power and utilization rates as the two major factors that make up what they are calling a mega-trend. BTW, I suck at IPO’s however VMware’s place in a market that is exploding as we speak and with no real competition in the X86 space look really attractive from my perspective.

In answer to you question, VMware does not make Windows any more stable. However, it gives organizations much more flexibility in provisioning Linux vs. Windows applications due to virtualization (i.e., you can run multiple slices of Linux and Windows on the same physical x86 box). I think the real key, beyond all the hype, is looking at what will happen to VMware after the IPO. Right now VMware is the only vendor that dominates the x86 space. All of the pre-IPO hype thus far has already given them a marketing boost that money can’t buy. I believe after a successful IPO the world will know all about virtualization and why it is important. However beyond all of that if you need to look at what Forrester is saying, they believe VMWare is planning on bundling their Hypervisor (the core engine of virtualization) with hardware. This is why I believe Intel is investing in the IPO. Now you have two hardware giants behind this vendor. However, here’s the kicker, if VMware get into the hardware game they will start chipping away at the big boys in the virtualization game (IBM an Sun). Hardware based virtualization on the x86 will move the discussion from the “we could put it there” to the “why not move that app from the IBM P560 to an Intel box”. IBM and Sun have strong plays in the virtualization space however their primary virtualization offerings are on the RISC architecture.

I also have some more info about Microsoft and Zen as competitors to VMware on my blog site if you are interested.

One last thought. I agree that hype is usually just hype and as I said earlier I stink at investing, however, I wish I would have got in Google when they were calling it the next Google a few years ago…

Thanks
John
johnmwillis.com

Fyi.. If you are still interested? Some of the IBM analyst calls are saying that a significant part of IBM’s great quarter numbers were due to virtualization. This is what I believe why VMware is IPO’ing.

johnmwillis.com

It’s probablly too hard for me. I think EMC might be a better (safer) play, they will own 90% after IPO, but I haven’t pulled the trigger yet.

As to the IPO, both EMC and people working for VMware will get some cash, but I’m not sure if I’m willing to pay for the high price (23 to 25, at PE of 55).

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