VMware IPO Nearly Doubles the Goal

VMware's much-anticipated IPO prompted a frenzy of first-day trading in the virtualization vendor's shares and speculation about parent company EMC's next move. (See VMware Prices IPO and VMware IPO in the Offing.)

The vendor's shares opened at $52 this morning, well above VMware's $29 target price. (See Double-Take, VMware Adjust Plans.) The shares closed slightly lower, at $51, although the IPO was still worth just under $1.7 billion, almost double the vendor's $957 million goal.

The offering even prompted wistful comparisons with the heady days of the dotcom explosion. "I havent seen this level of demand in a tech IPO since 1999 to 2000," says Scott Sweet, senior managing partner of financial analyst firm IPOBoutique.

The analyst even made a comparison with Google's 2004 IPO, which was the largest technology offering of recent years. (See Tech Cash Slashed? Learn From Google, Google IPO in Doubt, Gettin’ Googly, and Tracking Google's IT Booty.) "Google had trouble doing their deal initially, they had to lower their price [whereas] VMware raised theirs."

In addition to VMware, EMC looks set to be one of the big winners in today's IPO. (See EMC Still Rules VMware.) The storage vendor bought VMware for $635 million back in December 2003 and announced plans to spinoff part of its acquisition via IPO earlier this year. (See EMC Offers 10% of VMware, EMC Still Rules VMware, VMware, EMC Extend Offer, VMware to Spin Out, and Storage Bubble Wrap.)Other vendors with a stake in the company include Intel, which owns 2.5 percent of VMware's common stock, and Cisco, which owns 1.6 percent of the firm. (See Intel Invests in VMware, Cisco Invests in VMware, and Cisco's Storage Grows.)

EMC still holds around 90 percent of VMware's shares, although IPOBoutique's Sweet thinks this will change. "EMC will sell off more [of VMware], then at some point, they will sell the company," he says. "They have already made well more than their entire investment on this 10 percent -- eventually they will sell the company for a tremendous sum."

Potential VMware buyers could include Cisco and Intel, as well as software giant Microsoft, according to Sweet. "VMware owns the [virtualization] market and when you own the market, Microsoft doesn't like that, neither does Cisco."

In the short-term, today's deal is also expected to boost EMC's own share price. "In our view, the VMware IPO will add appeal to EMC shares," wrote Standard & Poor's equity research analyst Jawahar Hingorani in a note yesterday. "We also see the growth in virtualization adding to EMC's cachet, with the IPO of VMware emphasizing its importance."

VMware is seen as the first mover in the booming virtualization space, although rival vendors have recently cranked up their own efforts in this area. (See Storage Virtualization Strides On and Virtual Iron Dangles iSCSI Savings.)Initially, it seems that tough market conditions have not had an effect on the VMware offering. Wall Street plummeted last week after French bank BNP Paribas froze the assets of three funds that invested in U.S. mortgages, prompting the Dow Jones to drop more than 300 points.

Undeterred by unease in the financial markets, VMware amended its IPO prospectus late last week, raising its share price to between $27 and $29 from its original $23 to $25 range. (See VMware: The Charging Bellwether, EMC Offers 10% of VMware, and EMC Still Rules VMware.)

After a lean spell during the last few years, the first eight months of 2007 have been a busy time for storage-related IPOs. In addition to VMware, other vendors hitting the IPO trail include Double-Take, Voltaire, BladeLogic, Data Domain, and Compellent. (See Double-Take, Isilon Go Public, Double-Take Prices Shares, Voltaire Strikes IPO, BladeLogic Announces IPO Pricing, Data Domain Closes IPO, and Compellent Preps for IPO .)

In a recent Byte and Switch poll of CIOs and IT managers, almost 40 percent predicted that, of all the storage IPOs undertaken during the last 18 months, VMware's would be the most successful. (See The Risks of IPO.)

WAFS specialist Riverbed, which filed for IPO last year, was close behind, with some 30 percent of respondents labeling it the most successful public offering in the storage sector. (See Riverbed Comes Out at $9.75, Riverbed Plans Second Offering, The Slings & Arrows of IPOs, WAN Optimizers Lap Up Laptops, and Riverbed Gets 2000 Customers.) Data Domain was in third place with 13 percent of the votes. (See Data Domain Goes Public, Data Domain Dives In, and Data Domain Debuts With Q2 Loss.)