EMC Corp. has officially spun off a 10% stake of
server virtualization subsidiary VMware Inc.
with an initial public offering (IPO) of shares this morning
that were priced at $29, coming in higher than the previously
announced range of $23 to $25. At that pricing, the IPO was
expected to bring in $1.1 billion, $900 million after expenses.
Prior to today's offering on the New York Stock Exchange (NYSE),
two of EMC's fellow blue chips announced they were purchasing
stakes in the company. Intel Corp. bought 2.5% of VMware's common
stock for $218.5 million, or $23 per share, enough to get an Intel
executive appointed to the VMware board of directors; Cisco Systems
Inc. later bought six million shares at approximately $25 a share
for 1.6% of the offering worth about $150 million.
By comparison, one of the strongest IPOs in the enterprise
high-tech sector in the last year was Riverbed Technology Inc.,
which opened at $9.75 per share Sept. 22 and closed at $15.30. By
10:30 a.m. Eastern time today, VMware's shares were tracking at
about $52.
EMC's stock shot up more than 7% to close at $19.05 Monday in
anticipation of the VMware IPO this morning and spiked at $19.56,
though it fell again in early trading to $18.52, slightly below
where it had opened Monday morning. EMC was clear in stating in a
press release that it "will retain ownership of the remaining
shares of VMware and has no intention of spinning out or otherwise
divesting this ownership interest."
Despite the fact that EMC will retain ownership, Arun Taneja,
founder and analyst with the Taneja Group, said the IPO will at
least give the appearance of greater independence from EMC for
VMware, which will hopefully lead to deeper partnerships with EMC's
storage competitors. "The whole industry is transforming around
VMware, but we're still babes in the woods when it comes to
integrating VMware and storage."
For example, it was only late last year that the largest iSCSI
SAN vendors, EqualLogic Corp. and LeftHand Networks Inc., were
certified with VMware. ISCSI storage support for the VMware
Consolidated Backup (VCB) option was only added as part of a dot
release of the software this month.
"Migration is still tough" from DAS environments to networked
storage to support new VMware environments, according to Mark
Bowker, analyst with the Enterprise Strategy Group (ESG). Backup,
high availability and disaster recovery are also high-profile areas
when it comes to VMware's development, he said.
Meanwhile, rivals Virtual Iron Software Inc. and XenSource Inc.
are also beginning to make some noise around product development in
the hopes of competing better with Vmware.
XenSource announced in late July that its
virtualization software will embed storage management software
from Symantec Corp.
VMware already offers many of the same features as the
Symantec/XenSource package with its own file system, known as VMFS,
Bowker argued, but said that the IPO's other stated goal of "an
open platform strategy and partnerships with industry-leading
technology companies both large and small" could further
integration with applications, such as Microsoft's VSS (Volume
Shadow Copy Service) "That integration between VCB and VSS would be
huge," he said.
"Most storage companies already have some [development] efforts
already under way with VMware," Taneja pointed out. "But there's
also the sense they're dealing with a subsidiary of the enemy. A
greater percentage of VMware owned by the public could help that
perception."
Meanwhile, the analysts say, storage administrators can't ignore
the impact VMware is going to have on their jobs. "If I was a
storage guy, I'd be looking more and more at VMware, how it works
and how to take advantage of it to further my career using
something that requires a lot of storage expertise," Bowker
said.
Even before this high-profile debut onto the public market,
server virtualization, and VMware specifically, had already been
making waves in storage. Storage vendors including
LeftHand and FalconStor Software Inc. have
begun delivering some parts of their software packages as
virtual appliances. Symantec's
NetBackup 6.5 allows for more granular
restores from VMware backup images. The support for iSCSI SANs
with VMware's Infrastructure 3 (VI3) has brought
networked storage to a new audience and may
help host-based management products, such as
Symantec's SRM and Storage Foundation
software, boost sales.
"We are in uncharted territory," said Taneja, predicting that
virtual servers will come to challenge the position of today's
operating systems in the IT infrastructure. "It's not hard to
imagine the VMware layer becoming the main management system in the
data center."