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.

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