VMware IPO: A Storage Celebration

EMC's IPO of its VMware subsidiary marks a major shift in the storage market

August 15, 2007

3 Min Read
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Sparks flew off VMware shares as the company's long-awaited public debut went live today in what looks to be the biggest tech IPO (if not the biggest IPO, period) of 2007.

When we last checked on the Byte and Switch Index, shares of VMW were trading at $55, 89 percent above the $29 price announced last night. (See VMware Completes Exchange Offer and VMware Prices IPO.)

As senior editor James Rogers notes in his coverage today, VMware looks well set to exceed its IPO goal of raising $957 million.

Additionally, today's VMware debut marks a rite of passage for the storage industry in general, as VMware majority stakeholder EMC takes its place in the catbird seat of the IT market.

When EMC bought VMware for $635 million back in 2003, VMware had about 360 employees and was just coming off its first $100 million revenue year. (See EMC Gobbles VMware.) Now it has over 3,000 employees and looks to be making its first $1 billion in annual revenue.How can EMC not bask in this reflected glory? Having the foresight to gauge the importance of virtualization and the first-mover advantage VMware offered, EMC is no longer the red-headed stepchild in the IT pantheon. Instead, it ranks among the powerhouses of technology right up there with Microsoft and Cisco.

Indeed, Cisco and Intel both invested in this IPO: Cisco put out $150 million to buy about 1.6 percent of the Class A shares offered, while Intel spent $218.5 million to acquire a 2.5 percent stake. (See Cisco Invests in VMware and Intel Invests in VMware.)

But EMC, VMware, and their investors aren't the only ones who should see today as a watershed. It's tough not to miss what this IPO says about the evolution of storage networking in general and the revolution that virtualization is bringing to the data center.

It seems plain that virtualization is no longer a questionable investment, at least for many leading firms, who've voted with dollars to make VMware a success. At the same time, the move to virtualize is taking shape in a range of trends. Let's note just a few for the record:

  • Increased supplier diversity. The success of VMware and virtualization in general is helping launch healthy competition. Microsoft and XenSource are the main contenders. (See Storage Virtualization Strides On.) But there will likely be more as the technology develops and becomes more entrenched.

  • Virtualization of storage. While server virtualization is still top of mind, storage virtualization continues to develop in significant ways. HBA vendors are intent on expanding it, and its use is also part of the roadmaps and plans of block- and file-based storage vendors. (See Virtual HBAs Hitch Servers & Storage and Storage Virtualization Edges On.)

  • Desktop virtualization. Besides servers and storage, virtualization is gaining ground for laptop and desktop computers. The chief advantages here are viewed as tighter control, more efficient software licensing, and management of remote workers. (See Wanted: Virtual Desktop Services, Insider Eyes Virtual Desktops, and Desktop Virtualization Brokers Emerge.) Expect more activity in this space.

  • IO virtualization. Users and suppliers are turning to a new frontier of development of virtualization-aware IO devices, a crucial step in making virtualized servers as efficient and reliable as physical servers are today. (See IOV: The Final Frontier of Server Virtualization .) This area is set to become a focal point in the coming months.

  • Increased use of blade servers. Blade servers are a key vehicle in the implementation of virtualization in data centers. Expect to see a surge in activity around HP and IBM servers, as well as those from other suppliers. It's likely a corresponding upswing in high-speed interconnects like 10-Gbit/s Ethernet, 8-Gbit/s Fibre Channel, and InfiniBand will accompany this trend.

Got any views on the future of virtualization? We'd love to hear them, via the message board below or email. In the meantime, back to watching that ticker.

  • Cisco Systems Inc. (Nasdaq: CSCO)

  • EMC Corp. (NYSE: EMC)

  • Hewlett-Packard Co. (NYSE: HPQ)

  • IBM Corp. (NYSE: IBM)

  • Intel Corp. (Nasdaq: INTC)

  • VMware Inc. (NYSE: VMW)

  • XenSource Inc.0

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