VMware goes public with USD100m plea

27-04-2007

by The Register

VMware has titillated Wall Street once again with its plans to go public. The software maker dished up its hopes to pull in USD100 million from an IPO on Thursday.

In February, EMC revealed plans to sell 10 percent of VMware to commoners -- or, more accurately, really rich guys working on Wall Street. VMware, a maker of server virtualization software, continues to post stellar results, raising revenue close to triple digits quarter-over-quarter and bringing in about USD1 billion per year (at its current run rate). Such figures make VMware a standout in the software industry.

EMC investors have reaped little return from VMware's bull run with the storage maker's share-price stuck in neutral, despite solid overall performance. So, EMC has gone the Initial Public Offering (IPO) route with VMware, hoping to please the faithful.

According to a regulatory filing, Credit Suisse, Merrill Lynch, Lehman Brothers, Deutsche Bank, JP Morgan, and Citi will all have a hand in VMware's IPO. The software maker has yet to pick whether it will list on the NYSE or Nasdaq exchange.

VMware plans to use the IPO funds to repay debt owed to EMC, to buy its headquarters in Palo Alto from EMC, and to hire new staff.

The IPO regulatory filing produced by VMware shows a company with surging revenue and costs. For example, VMware's revenue jumped from USD115 million in the December quarter of 2005 to USD227 million in the December quarter of 2006. Over that same period, VMware's R&D costs rose from USD10 million to USD50 million, while sales and marketing costs rose from USD40 million to USD81 million. G&A costs surged as well to USD25 million from USD7 million.

The end result?

VMware produced a USD31 million profit in the 2006 quarter as compared to a USD28 million profit in the same period the previous year. VMware's president and chief executive Diane Greene earned USD6.4 million in total compensation last year, according to the filing.

As noted in its documents, VMware faces increasing threats from Microsoft, the open source world, and a host of start-ups. The company, however, clearly has the leadership spot in the server virtualization market, which includes software used to run multiple operating systems and applications on a single, physical server.

Bootnote

Once again, Sun co-founder Andy Bechtolsheim looks to do well from an investment. He put some of the original money into Sun and Google, among others, and was an early investor in VMware.

The Register and its contents are copyright 2007 Situation Publishing. Reprinted with permission.