(Adds VMware comment, paragraph 7)
By Jim Finkle
BOSTON Nov 12 Oracle Corp ORCL.O made a move
on Monday to take on VMWare Inc (VMW.N) in the market for
virtualization software, unveiling a product that it says is
three times more efficient than competitors' offerings.
VMware shares fell 8.4 percent after executives at Oracle,
the world's second-largest software maker, demonstrated the
product before thousands of customers at a conference in San
Francisco. Oracle shares rose as much as 2.9 percent.
Customers can download "Oracle VM" for free starting on
Wednesday, the company said. Oracle will sell service contracts
for the product ranging from $499 to $999 per year.
Virtualization software allows companies to save costs by
squeezing more resources out of each computer, helping
businesses save on electricity, space in data centers,
maintenance fees and other expenses.
That market is now dominated by VMware, an affiliate of EMC
"Is this bad news for VMware? Yes," said Trip Chowdhry, an
analyst with Global Equities Research. "This tells us that the
virtualization market will not belong to VMware. One of the
players will be Oracle. Until today that news has not been
factored into the stock price."
When asked if VMware was concerned about the challenge from
Oracle, a company spokesman e-mailed a statement from Vice
President Parag Patel that said, "We believe customers want a
consistent approach to virtualization that has a proven track
record with mission critical deployments and a complete
The software maker said in a quarterly report filed with
the U.S. Securities and Exchange Commission last week that new
competition from a large established software maker could push
down product prices and reduce profit margins.
Jefferies & Co. analyst Katherine Egbert said she wanted to
get more information about Oracle VM because at first glance it
looked like VMware's technology might be more robust on Windows
Almost all servers that are used for virtualization are
Windows machines, she said, so Oracle may only be addressing a
tiny segment of the potential market, she said.
VMware went public in August in what was the hottest
technology initial public offering in years. VMware has a
market value of about $34 billion, making it the fourth-largest
publicly held software maker in the world.
The stock closed down $7.38 at $80.36 on the New York Stock
Exchange, but it remains far above its IPO price of $29 a
share. EMC, which owns 86 percent of VMware, saw its shares
fall 5.42 percent to $18.83.
Oracle shares ended up 0.41 percent at $19.44 after hitting
a session high of $19.92.
Oracle's services contracts cover updates, bug fixes and
other support services and will cost either $499 or $999 per
year, depending on the type of computer that is running the
software, according to its Web site,
Microsoft Corp (MSFT.O), Red Hat Inc (RHT.N), Novell Inc
NOVL.O, and Citrix Systems Inc (CTXS.O) also sell
virtualization software, though the functions are more limited
than those of VMware products.
(Editing by Maureen Bavdek, Gerald E. McCormick and Carol