Tech Check

VMware the 'Google' of Virtualization -- Stockwise


Ever hear of VMware ? Probably not, since the company works in high end "virtualization software" that makes a computer run better; the way STP or other fuel enhancers increase the performance of your car? VMware does that with software for your PC.

VMware was acquired by EMC Corp. back in 2004 for about $635 million. But now, EMC is cashing in on its investment in a big, big way. The company yesterday spun out a 10% stake in VMware, offering shares at $29, generating a whopping $900 million. Shares zoomed to $50 that first day of trading, and thanks to that 80% pop, turned VMware into the most successful IPO since Google offered stock the same year EMC bought VMware: 2004.

Do the back-of-the-envelope math: EMC's $635 million investment three years ago is now worth just shy of $10 billion based on the IPO price!

VMware's first-day rocket-ship ride is all the more intriguing since shares had already been bumped up better than 20% above the original asking price.

So what gives?

Well, to start with, this company's business is going gangbusters. It should top $1 billion in annual revenue this year -- not bad for a company just turning 10. So far in 2007, the company generated $555.5 million through June; double revenue from the same period a year earlier. Profits also more than doubled to $75.3 million.

And aside from EMC, the company counts Cisco and Intel as key investors, and both are counting their ka-ching from those deals. Last month, Intel bought a 2.5% stake in VMware at $23 a share, or $218 million. Cisco bought 6 million shares for $150 million or $25 a share.
VMware's performance is all the more amazing when you take into account the stock market madness that's been whipsawing investors for the last month. And while I keep beating the drum about "tech" as a new kind "flight to quality" for investors, thanks to strong guidance from the likes of Cisco, Intel, Microsoft , IBM, and so many others -- as well as the mountains of cash they sit on and generate -- the VMware IPO sends another key message:  That the tech IPO window is wide open, and that the pipeline seems strong for up-and-comers on the way.

"Around 2002, we crossed a major milestone," longtime Silicon Valley watcher and Creative Strategies president Tim Bajarin tells me this morning. That was when digital technology for business began to cross over to digital technology to the masses.

"We're not talking about hundreds of millions of computers, we're talking about billions of digital devices," he says. "Believe it or not, we're still in the early stages of bringing digital technology to the masses. We're in the infrastructure stages. If an investor truly understands that, they realize they have a very long play ahead of them. Ten years. Fifteen years."

This is shaping up to be an intriguing, and possibly very lucrative, time for the savvy investor.

Questions?  Comments?