VMWare (NYSE: VMW) became one of the worst IPOs of recent memory after being one of the best. Then it fired its founder and CEO. In August 2007, the stock started trading at $55. It hit $125 two months later as analysts thought revenue would double every year for the next two or three. When it appeared that would not happen, the stock dropped to under $20.

The case for VMWare as a great tech company is its lead in the virtualization software business. It allows one server to do the work of several by running more than one operating task. The number of servers needed to run multiple functions at a company can be cut sharply, saving hardware costs.

VWWare has a large lead over competition in the breadth of its products. Microsoft (NASDAQ: MSFT) has come into the market but by many estimates is a year or two behind.

For the third quarter, sales at VMWare rose 32%, year over year, to $472 million. The company's $.24 EPS was four cents better than expected by analysts. VMW also affirmed its full-year outlook. The market could not have been more happy. The stock was up over 20% after hours.

Doubting the company's prospects has turned out to be a major mistake. It is nearly impossible to find a software product that can add so much efficiency to the operations of its corporate customers and allow them to drive down IT capital expense.

VMWare's promise was there all along. Investor who ignored it just missed out on a big gain.

Douglas A. McIntyre is an editor at 247wallst.com.

The server virtualization business is the next big thing in corporate computing as it allows servers to run several programs where before they might have been able to run only one. That allows enterprises to save on hardware costs. The leader in the industry has been VMware (NYSE: VMW), which had its IPO less than a year ago. The company has had red-hot growth rates and is very profitable.

As is true in all things involving software, though, Microsoft (NASDAQ: MSFT) wants a piece of the action [subscription required]. It is about to launch software to compete with VMware. The name of the new product line is Hyper-V.

As VMware gets ready for the challenge from Microsoft, it is forming alliances with IBM (NYSE: IBM), Hewlett-Packard (NYSE: HPQ) and Dell (NASDAQ: DELL) to ship its software pre-installed on some of their servers.

According to The Wall Street Journal, "VMware customers aren't ready to say they will switch, but seem to welcome the competition." Microsoft's new product is bad for VMware no matter how Wall Street wants to slice it. After hitting $125.25 post-IPO, VMW share are now below $59. The company has operating margins of 20% and is still growing at a rapid pace.

Microsoft knows how to enter a market: come in with a good product, tie it to Windows and price the new software to squeeze competitor margins. VMware is in for the fight of its life.

Douglas A McIntyre is an editor at 247wallst.com.

Virtualization is certainly a killer technology (essentially allowing for better utilization of software, servers, data centers and so on). It's also a big money maker, as seen with the performance of VMware (NYSE: VMW).

But Citrix is also ramping up on virtualization. It helps that the company has a robust technology platform. Hey, just look at the company's Q4 results. Revenues increased 25% to $399.6 million and profits went from $52.9 million, or $0.29 per share to $62.8 million, or $0.33 per share. License revenues increased a healthy 24% to $178 million.

There was strength across the board, such as with its Presentation Server (there were six deals with price tags over $1 million) and the online services division, which saw a 37% increase in revenues over the past year to $59 million.

But the big bet is on XenSource, a cutting-edge provider of virtualization technologies (Citrix recently purchased the company). It's still in the early stages but it looks like the growth may be explosive. For example, Citrix has key deals with Dell (NASDAQ: DELL), Hewlett-Packard (NYSE: HPQ) and Microsoft (NASDAQ: MSFT). The goal is to get to $50 million in revenues for 2008. And, keep in mind that – according to a study from ITC – the market for virtualization software and services is expected to reach $15 billion by 2011.

So far, investors seem to be excited. In today's trading, Citrix's shares increased 7.16% to $34.29.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

An IPO does not come any hotter than VMware (NYSE: VMW). After popping out of the box at just over $51, the shares moved up to over $125 in just four months. That gave the company a market cap of about $45 billion and the stock was trading at 40x sales.

It did not take long for those days to be over. VMware shares now change hands at $71.44. Wall Street changed its opinion on the company in less than two months.

So why the change of heart? According to Barron's it may be a flaw in the company revenue model. Its customers buy big enterprise licensing covering more server installations than they have, figuring that they will grow into the license. Cowen's William Pritchard told the news magazine that this method of doing business promotes "often forward buying more capacity than they intend to deploy initially, but instead securing a more favorable price for the software through the larger and long-term commitment." That would mean VMware's revenue could be undermined a year or two out. Cowen thinks the bad fruits of this kind of license will begin to show up in the second quarter of next year.

Or the stock could simply go lower on its current valuation.

Despite the move down in price, VMW still has a forward P/E of almost 62 and still trades at 24x revenue. If the company even has a tiny miss on its next quarter numbers or its guidance gets cut down, the shares could see the $50s again.

Douglas A. McIntyre is an editor at 247wallst.com.

Is Dell (NASDAQ: DELL) ready to begin a slew of acquisitions? Once loathe to make large buys, the company has acquired storage provider EqualLogic in the recent past, a sign that the world's second-largest PC maker sees a bright future for corporate storage. No, we're not talking those 10'x20' rentals for the boat, but for digital storage, as in hard drives.

Sun Microsystems (NASDAQ: JAVAD) purchased StorageTek a few years ago, and then IBM Corp. (NYSE: IBM) bought NovusCG just recently, so storage technology and solutions providing is apparently a hot ticket these days. Dell, one to spend hardly anything on any company compared to the competition, spent $1.4 billion for EqualLogic.

On last night's MAD MONEY on CNBC, Jim Cramer gave a host of potential draft picks for his "Fantasy Football Draft Pick Stock Portfolio." In his wide receiver stock pick group from last night, the one that stood out the most is the beloved VMware (NYSE: VMW). He thinks the 85% market share of the virtualization market and the huge performance of the IPO will make this one a steady scoring player.

I have been out on VMware quite a bit and the funny thing about this stock is that there truly exists a VMware Conundrum. Don't get me wrong, the company is phenomenal and its space has exponential growth ahead of it. However, the low float and the incredibly tight fists that EMC Corp. (NYSE: EMC) holds over it with 86% under lock and key means that this can ramp (or tank) on very little volume. Its market capitalization is well over $20 billion, yet only a tiny portion is in the free float.

The company also made an acquisition Tuesday morning, so it isn't going to just sit idle to see if can catch up to its market cap organically. It has been in the spotlight all week because of the VMware VMworld 2007 conference. Timid investors need to tread lightly because this one can move with a mind of its own. Similarly, the analysis may not mean as much due to its size versus its float.

VMware (NYSE: VMW), the leader in virtualization, recently had its IPO. It was a red-hot offering and the company now sports a market cap of $22.8 billion.

No doubt, there are other companies that want a piece of the market. One contender is Virtual Iron.

I had a chance to interview the company's CEO, John Thibault, who has more than 27 years experience in the tech industry. Some of his prior gigs include senior positions at companies like Cisco (NASDAQ: CSCO) and Convergent Networks.

Q: "Background on the company?"

A: "Virtual Iron was founded in 2003 with the goal of delivering high performance virtualization and management software solutions.

"In June 2005, we introduced the first server virtualization solution with advanced management and policy-based automation capabilities to the market. In October 2006, we were the first to deliver enterprise-class server virtualization and management capabilities on top of an open source foundation.

"With the increasing commoditization of the underlying virtualization technology (commonly called the hypervisor) our philosophy has been to leverage the latest advances in industry standards and open source technologies and build our advanced policy-based management capabilities on top of that. We believe the true value of virtualization is in the management of the virtual environment. And as virtualization becomes more pervasive in the data center, virtual infrastructure will replace physical infrastructure, making these virtual infrastructure management capabilities more strategic than ever."

VMware Inc (NYSE: VMW), the server virtualization software company that EMC Corporation (NYSE: EMC) is selling a chuck of to the public, received a welcome reception from the investment community last night.

The tech offering was priced at $29, at the upper end of its price range of $27 to $29 -- which was raised from an initial price range of $23 to $25. The offering was oversubscribed by 25 times, according to news reports.

Technology-land has been without a catalyst for a while. Often tech bull markets start off with a successful IPO that piques investors' interest. Since private equity will not be driving stocks prices higher, look for IPOs, share buybacks and big dividend increases to continue to drive stock prices higher.

Twenty-five times oversubscribed suggests investors are beginning to get hungry for tech again. This has not happened in the sector in a quite a long time.

VMware, the California-based server virtualization company, is due to come public the next few weeks as it wraps up its roadshow.

EMC Corporation (NYSE: EMC), which owns VMware, sold a big stake to Intel Corporation (NASDAQ: INTC) and will allow us to participate in this industry's growth as well. However, as pointed out by Eric Savitz in Barron's over the weekend, server virtualization might hurt the big server companies such as Sun Microsystems Inc (NASDAQ: SUNW) and Dell Inc (NASDAQ: DELL), as it reduces the need for servers on a five-to-ratio. Virtualization allows numerous users to work off of one server.

Technology bull markets often take off on a disruptive product and maybe server virtualization will be it. The IPO market for hardware and software has been dead for quite a while. Rather than going public, technology companies have been going private. The VMware deal is important because it could set the stage for renewed investor interest in technology. I'd keep an eye on this IPO, this could be a high flier.