August 14, 2007 / 3:07 PM / 12 years ago

VMware shares soar in top tech debut since Google

BOSTON (Reuters) - VMware Inc. (VMW.N) shares soared 76 percent in their trading debut on Tuesday, valuing the software maker at about $19 billion in the hottest technology IPO since Web search leader Google Inc. (GOOG.O) went public in 2004.

Its shares closed at $51.00 on the New York Stock Exchange, up from Monday’s IPO price of $29.

VMware, a nine-year old company whose products are used to help manage data centers and control technology, ended the day ranked as the world’s No. 5 publicly traded software maker based on market value, behind Microsoft Corp (MSFT.O), Oracle Corp ORCL.O, SAP AG (SAPG.DE) and Adobe Systems Inc (ADBE.O).

Few people outside of technology circles had heard of the company before parent EMC Corp. EMC.N announced plans for the IPO in February.

As analysts talked up the company’s prospects over the past few months, investors embraced the IPO to get in on what they say may be the next big thing in computing: virtualization technology.

VMware became the only major player in this area by selling software programs that can create, run and manage multiple “virtual” machines on a single computer, allowing businesses to spend less on hardware and other costs.

Many large technology companies are developing products using virtualization technology, and dozens of start-ups are seeking to make name for themselves in the sector.

But so far none of them have been able to derail VMware, whose sales have been doubling year-on-year for the past several quarters, boosting the company’s annual revenue rate to about $1 billion.

Industry experts say that virtualization has just started to take off and that the technology will one day become as crucial to business computing as operating systems like Microsoft’s Windows.

“Virtualization has the capability to become the next operating system in the data center,” said David Skok, a general partner with investment firm Matrix Partners who sits on the board of Virtual Iron Software, a tiny privately held rival of VMware.

TURNING MAC INTO WINDOWS

While still mostly used for business computing, the technology has already made its way onto personal computers.

Virtualization programs that run Windows software on Apple Inc. (AAPL.O) computers are among the best-selling Macintosh software titles.

No. 2 PC maker Dell Inc. DELL.O plans to start selling personal computers as early as next year that can run multiple operating systems, allowing consumers to run specialized “virtual PCs” on a single machine that are customized to handle specific tasks such as playing video games, surfing the Web, or running the Linux operating system.

Shortly before the IPO, Intel Corp. (INTC.O) and Cisco Systems Inc. (CSCO.O) agreed to buy stakes in VMware, saying they wanted to strengthen ties with the software maker.

“Nearly all IT hardware and software vendors are looking at VMware’s success and trying to find ways to virtualize their products,” Jefferies & Co. analyst Katherine Egbert said in a report.

VMWare’s closest rival, privately held SWsoft, sells a program called Parallels that makes it easy to run Windows software on Macintosh computers and says it has annual sales of about $100 million. Microsoft and several privately held companies also compete with VMware.

EMC sold 33 million VMware class A shares to the public. That accounts for about 9 percent of the 375 million shares of common stock in VMware. Underwriters have an option to buy an additional 4.95 million shares.

The spinoff also gave EMC a windfall profit on the Silicon Valley software maker which it bought in January 2004 for $625 million in an effort to diversify beyond hardware.

EMC shares fell almost 4 percent to $18.34 on Tuesday. The stock has gained more than 37 percent since it disclosed plans for the VMware IPO in February.

EMC Chief Financial Officer David Goulden said in an interview on Tuesday that he hadn’t expected the stock to perform so strongly on its first day of trading.

“Are we surprised? Yes,” he said. “You have no idea what the market is going to do. Let’s see where it all goes.”

Google’s IPO raised $1.67 billion in August 2004. At its market debut, the company’s shares rose 18 percent, valuing the company at about $27 billion.

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