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.

VMWare (VMW): Why tech efficiency wins originally appeared on BloggingStocks on Wed, 22 Oct 2008 08:38:00 EST. Please see our terms for use of feeds.

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.

Microsoft (MSFT) puts pressure on VMware (VMW) originally appeared on BloggingStocks on Tue, 26 Feb 2008 11:22:00 EST. Please see our terms for use of feeds.

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.

Citrix: Making real money from virtualization originally appeared on BloggingStocks on Fri, 25 Jan 2008 14:00:00 EST. Please see our terms for use of feeds.

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.

VMware (VMW) falls on concerns about sales model originally appeared on BloggingStocks on Tue, 27 Nov 2007 08:32:00 EST. Please see our terms for use of feeds.

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