It's August. The credit markets are tightening. The Dow is falling.Yet, despite all this, VMware (NYSE: VMW) was able to launch a blockbuster IPO. Right now, the shares are up 82% to $53 per share. In fact, the market cap is at a nosebleed $20 billion.
The company is the clear leader in virtualization, which allows companies to improve the utilization of their servers. It's turned out to be a hyper-growth market.
Interestingly enough, EMC (NYSE: EMC) bought the company for a mere $635 million in late 2003.
To get some perspective on things, I talked to Chris Cabrera, who is a veteran of the enterprise software world. His new company -- Xactly Corporation – is also growing fast and has attracted several rounds of venture capital.
Q: Initial impressions of the IPO?
Chris: "How can you not be impressed? Any time your stock almost doubles in the first day of trading, raising almost $1 bilion, you've got to be happy."
Q: Will this be a boost to tech IPOs?
Chris: "I think the tech IPO market is coming back and this will certainly help. Wall Street can't help but love their story - - $1B run-rate, profitable, leader in their space, backed by EMC, etc. That said, as an IPO, VMW is such an anomaly that it's hard to imagine it helps the typical tech IPO that much."
Q: Why has VMware been so successful?
Chris: "As always, companies need to find ways to do more with less. Take the example of a company with a small data center of 100 servers that are dedicated to many different tasks but whose combined utilization is only 50%. If the company can get these 100 servers to act as one and get the utilization to 70% or 80%, it will enjoy great savings through efficiencies. The larger the data center gets, the more value VMW can have for them. In addition to improving utilization, VMW can positively impact one of the largest expenses of these data centers - - that is, power. By utilizing VMZ's virtualization software, companies can dramatically improve the efficiencies of their server farms and minimize power usage, saving hundreds of thousands of dollars."
Q: Why has it attracted investments from biggies like Intel (NASDAQ: INTC) and Cisco (NASDAQ: CSCO)?
Chris: "Intel and Cisco are no dummies. Anything that is transforming the data centers is something they care about. The grids that are created with VMW are often built on Cisco and Intel, and these data centers are not getting smaller. More importantly, buyers will be looking to acquire the hardware that makes best use of VMW virtualization. So while VMW might mean less hardware sales in the short run, optimizing their products to work with VMW can provide differentiation in the long run against the likes of Sun (NASDAQ: SUNW) and IBM (NYSE: IBM)."
Q: What are the prospects for the virtualization market?
Chris: "I think the future looks bright for VMW. Data centers everywhere are getting bigger and bigger. Moreover, with the advent of multi-tenant SaaS (software as a service) companies like Salesforce (NYSE: CRM), SuccessFactors and Xactly Corporation, the need for efficient server grids is exploding."
Q: See Microsoft as a major competitor (the company launches its enterprise systems next year, apparently)?
Chris: "Never count MSFT out, but this party has already started and the guests are in full swing."
What's more, if you want to check out more IPO pricings, click here.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
Chris: "I think the tech IPO market is coming back and this will certainly help. Wall Street can't help but love their story - - $1B run-rate, profitable, leader in their space, backed by EMC, etc. That said, as an IPO, VMW is such an anomaly that it's hard to imagine it helps the typical tech IPO that much."
Q: Why has VMware been so successful?
Chris: "As always, companies need to find ways to do more with less. Take the example of a company with a small data center of 100 servers that are dedicated to many different tasks but whose combined utilization is only 50%. If the company can get these 100 servers to act as one and get the utilization to 70% or 80%, it will enjoy great savings through efficiencies. The larger the data center gets, the more value VMW can have for them. In addition to improving utilization, VMW can positively impact one of the largest expenses of these data centers - - that is, power. By utilizing VMZ's virtualization software, companies can dramatically improve the efficiencies of their server farms and minimize power usage, saving hundreds of thousands of dollars."
Q: Why has it attracted investments from biggies like Intel (NASDAQ: INTC) and Cisco (NASDAQ: CSCO)?
Chris: "Intel and Cisco are no dummies. Anything that is transforming the data centers is something they care about. The grids that are created with VMW are often built on Cisco and Intel, and these data centers are not getting smaller. More importantly, buyers will be looking to acquire the hardware that makes best use of VMW virtualization. So while VMW might mean less hardware sales in the short run, optimizing their products to work with VMW can provide differentiation in the long run against the likes of Sun (NASDAQ: SUNW) and IBM (NYSE: IBM)."
Q: What are the prospects for the virtualization market?
Chris: "I think the future looks bright for VMW. Data centers everywhere are getting bigger and bigger. Moreover, with the advent of multi-tenant SaaS (software as a service) companies like Salesforce (NYSE: CRM), SuccessFactors and Xactly Corporation, the need for efficient server grids is exploding."
Q: See Microsoft as a major competitor (the company launches its enterprise systems next year, apparently)?
Chris: "Never count MSFT out, but this party has already started and the guests are in full swing."
What's more, if you want to check out more IPO pricings, click here.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
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